With the recent collapse of the price of oil, OPEC countries have agreed to cut production. Which countries, if any, will actually cut production, and what would the effect be on the price of oil?
First, let's take a look at the top producing countries:
World's top oil producers (as of 2007, in barrels per day):
|Saudi Arabia||11,000,000 bbl|
|United States of America||7,460,000 bbl|
|United Kingdom||1,636,000 bbl|
The question is, of these countries, which ones will actually cut production, and which will not given that they may desperate need to oil revenues. Let us first take a look at the top oil consumers (data from 2005):
|United States of America||20,800,000 bbl|
|South Korea||2,130,000 bbl|
|Saudi Arabia||2,000,000 bbl|
|United Kingdom||1,820,000 bbl|
|South Africa||519,000 bbl|
|Argentina||480,000 bbl |
And here is the the net between production and consumption:
(please click on image to enlarge)
From the list, we can see that Saudi Arabia that is pretty much the only country with significant exports that has the luxury of allowing itself to cut production. Russia desperately needs the revenue, so does Venezuela and several of the other top net exporters.. The US, China, do not export. The US is dead last on this list.
In 2007 Saudi Arabia was responsible for around 17% of the world production of 60.1M barrels per day, for 30% of the net exports of 28.2M barrels per day.
So, when OPEC says they will cut production, will they? How much will the actual reduction be, and how will it affect the price of oil? Given that oil consumption is unlikely to pick up due to the current economic crisis, the answer to this question may can be used to reach conclusions on what will the price of USO, USL, UCO do in the near future. It does not look too good for 2009, regardless of stated production cuts.
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