OPEC to Cut Daily Crude Production by 2.5 Million Barrels, But WSJ Reports as 4.2 Million « naked capitalism

Wednesday, December 17, 2008

OPEC to Cut Daily Crude Production by 2.5 Million Barrels, But WSJ Reports as 4.2 Million

From MarketWatch (weirdly, do not see referenced story on Wall Street Journal site, hat tip reader Scott):

The Organization of Petroleum Exporting Countries has decided to cut its oil output by 4.2 million barrels a day from September levels, or 2.2 million barrels a day from current output, the Wall Street Journal reported on its Web site Wednesday. Most analysts anticipated a cut of about 2 million barrels a day. On Globex, January crude futures were last down 59 cents, or 1.4%, to $43.03 a barrel

But that isn’t actually what was announced. The cut was 4.2 MBD from September levels. From reader Michael, who listened to the OPEC live feed:

WSJ (of course) screams “4.2mbbl cut” but its sensationalistic as opec minister says that was the cut vs. SEPT production…putting the cut at more like 2.6m. Oil is still red on the news and seems unimpressed. EIA data showed more big builds in diesel and refinery ut. back down at 84%. Bulls will focus on the second derivative of decline is slowing for gasoline demand. In terms of where are they gonna put it…all I can guess is they keep leasing ships and continue shutting production (or dump it??).

In terms of leadership, Hussman had a nice look at it and made the point that low-quality (aka cyclicals…i lump most of materials and energy in with this group) were a massive bubble. In terms of their fate he says:

“In both cases [tech bubble in 2000 and nifty 50 during 70’s], the market declined by about 50 percent and some of the most previously loved stocks fell by greater than 70 percent. Though the market quickly moved higher in 2002 and 1974, this doesn’t provide much of a case that the market will do the same in this instance. Even so, it should be reassuring to long-term investors that they don’t need to chase low-quality stocks or speculative favorites to be successful. Over time, low quality investing tends to be an unrewarding and high-risk round-trip.”

Oil shares seem to be following the WSJ, at least for now…Just do the math on the Bloomberg numbers (which also used the 4.2 MBD headline, but at least did say from September levels):

OPEC agreed to cut oil output by 4.2 million barrels a day from September production levels, Secretary-General Abdalla El-Badri said.

The Organization of Petroleum Exporting Countries will cut output from a daily level of 29.045 million barrels three months ago, indicating a new quota target of 24.845 barrels a day.

.
A story yesterday on Bloomberg put the November quota at :

In its monthly report today, the OPEC secretariat said production from the 11 members with quotas was 27.937 million barrels a day in November, some 629,000 barrels a day above the official limit. That estimate cited an average of secondary sources, including analysts and new agencies.

Old production quote + 27.308. New target = 24.845. I get a difference of less than 2.5 million MBD.

What kind of press do we have here? And how desperate is OPEC, that they have to resort to Administration-like spinning?

Update 11:30 AM: The Journal has revised its initial report:

The Organization of Petroleum Exporting Countries announced Wednesday that it will cut its oil production by a further 2.2 million barrels a day.

The new cut is effective from January 2009 Iraq’s oil minister said, and brings OPEC’s total announced supply reductions to 4.2 million barrels a day since August.

10 Comments:

Anonymous says:

December 17, 2008 at 11:32 am

Not sure which WSJ edition your quoting. The current online WSJ headline reads
“OPEC Announces Deep Production Cuts”
with a subhead of
“OPEC announced it will cut its oil production by a further 2.2 million barrels a day, bringing the organization’s total supply reductions to 4.2 million barrels a day since August.”

The e-mail news alert I received from them used the 2.2 MBD figure for the subject and then the 4.2 MBD reduction from September in the main text, which all seems to tally with what the others are reporting.

Yves Smith says:

December 17, 2008 at 11:38 am

MarketWatch is a Dow Jones publication, so if they put it in a story, trust me, it WAS up. I an e-mailed MarketWatch Bulletin.

And one would expect the Journal to catch, sooner or later, the error and correct the website. CNBC apparently also had the 4.2 MBD figure all over its website and changed that too.

The joys of the Internet, it facilitates revisionist history.

mxq says:

December 17, 2008 at 11:47 am

cnbc had addison armstrong on (oil trader) right as they announced 4.2m bbl cut…and everyone freaked out b/c they thought it was double what it really was…oil spiked a dollar and a half and his since given it back.

cnbc usually uploads all of its clips…here is them mis-reporting in real time.

mxq says:

December 17, 2008 at 11:55 am

(btw…for the sake of your sanity…skip to 1:40 in the above clip)

M.G. says:

December 17, 2008 at 3:43 pm

That means that the market cannot see the difference of 2 millions? This proves that oil price has nothing to do with demand/supply. It is over 60% speculation and manipulation. All predictions about oil are bullshit and serve just one purpose, speculation and avoid to move to non-oil economy.
Oil price and dollar in free fall? For the dollar the tsunami can start…

GloomBoom.com says:

December 17, 2008 at 9:03 pm

It doesn’t matter, OPEC members always cheat so nobody takes them seriously. If they have buyers, they will sell it. Kind of a Field Of Dreams motif: If you buy it, they will pump!

joe c says:

December 17, 2008 at 10:04 pm

Just to put in perspective, it took four years for oil to go from $40 to $147, helping cripple the global economy on the way, and then four months to drop from $147 to under $40, and not reviving the economy on the way down.

It shows just how completely out of whack the global financial system had become. That said, a global economy at full bore, started hitting some great resource constraints, oil certainly one, but many others.

Whenever the global economy recovers, its going to again quickly meet these resource constraints, none greater than oil.

This is something I wrote on IEA’s World Energy Outlook 2008: The Era of Cheap Oil is Over

As long as the economy slows, oil price will be low, but it will climb simultaneously with any recovery, however distant that appears to be growing.

Anonymous says:

December 17, 2008 at 10:31 pm

OT:

Consumer credit fell $6.4 billion in August and $3.5 billion in October, making 2008 the first year with at least two declines since 1992, according to Fed data. August’s decline was the biggest in at least 65 years.

Bond sales by companies rated below investment-grade fell 57 percent to $63.3 billion this year from 2007, according to data compiled by Bloomberg. The extra yield investors demand to own the debt instead of Treasuries rose to a record 21.4 percentage points yesterday from 1.32 percent 18 months ago.

Personal bankruptcies rose 34 percent in the third quarter from the same period of 2007, according to the American Bankruptcy Institute in Alexandria, Virginia. Moody’s Investors Service predicted in November that corporate defaults in the U.S. will surge threefold to 11.4 percent in the next 12 months.

Traders don’t expect lending to improve until mid-2009 at the earliest, based on the difference between Libor and the expected average federal funds rate over the next three months, known as the Libor-OIS spread. The spread, now at about 1.4 percentage points, may narrow to about 0.84 percentage point by June, forwards contracts show.

Former Fed Chairman Alan Greenspan said in June that the measure was the best way to tell when lending returned to “normal.” He said it would need to narrow to about 25 basis points, or 0.25 percentage point, for that to happen.

Anonymous says:

December 18, 2008 at 1:20 am

Watching OPEC cut production is like watching fed cut rates. Sure there is a whole lot of buzz in the media, but at the end of the day nobody cares.

freude bud says:

December 18, 2008 at 4:50 am

It’s not incorrect reporting, exactly, it’s reporting what you’ve been told.

OPEC agreed to cut 4.2 million barrels from the ACTUAL September OPEC-11 production. That’s no lie, but clearly meant to mislead.

The problem is that OPEC doesn’t want to be transparent about their production or how much they supply–discrete questions. A governor confirmed the implied cut, but remember that we only had the numbers for the cuts effective November 1, not the quota from which the cuts were made. Similarly, now we have a cut, but have no idea which country is responsible for how much, meaning that there is no way to keep track of whether this country or that is keeping faith with the cartel.

In the meantime, Russia has indicated that it might join the supply reduction. Fair enough, but it simultaneously has put off revisions to the way it accounts for its reserves–revisions which would have brought its reserves accounting into synchronization with Western accounting. (One might forgive Moscow for giving the gimlet eye to all independent verification of books by Western accounting corporations these days. Honestly, why is any attention paid to their estimations these days?) In any case, an additional 600 kb/d (at least!) from Azerbaijan and/or Russia and/or Kazakhstan does sound impressive. Even Moscow appears to be waiting on surveys from the major wires and shipping consultancies.

Still, the reporters want to remain friendly with OPEC, and so they report it the way OPEC wants it reported. No one who watches closely will be fooled anyways. Or at least I imagine that is how the reporters justify it all to themselves. After all, most of them are but 20 years old and have zero experience in the field which they are reporting on. (I have a friend who was simply made–with zero financial background whatsoever–the key reporter for mortgage backed securities in the 90s at an important wire service … they gave him a textbook with which to prepare … !!!!)

Humbug indeed.

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