Oil Supply Cutbacks

The market is expecting OPEC to cut another million barrels out of the production pipeline after their meeting this weekend. That would bring the total production down by 5 million barrels per day. At an 80% compliance factor that would still be 4million a day.

My thoughts on this is that with the supply now coming more inline with demand there is more potential for smaller events to have more influence on the price of oil. For example today, a couple of Chinese destroyers were harrasing an unarmed US Navy vessel in international waters off the coast of China. The advent of potential political tensions, coupled with the belief that OPEC would cut back supply further sent crude to over $47.

Weather, political tensions, militant terrorism, mechanical problems, unions - all have the ability to affect the price of oil on the world market. I think that as supply reductions continue to take hold the potential for wild swings in prices to the upside are growing.