Chavez Says Oil Should Not Fall Below $60/Barrel

[BPSCG]

Link (http://today.reuters.com/news/articlenews.aspx?type=businessNews&storyid=2006-10-04T043439Z_01_B427558_RTRUKOC_0_US-ENERGY-VENEZUELA-PRICE.xml&src=rss&rpc=23)
CARACAS, Venezuela (Reuters) - Venezuelan President Hugo Chavez said on Tuesday the price of oil should not fall below $60 a barrel, two days after the OPEC country cut its production to stem price declines.

Oil has tumbled more than 20 percent from peak levels of close to $78 per barrel in July, sparking concerns among some producer nations of a prolonged slump in oil prices.

Chavez said he had ordered Venezuela's cut of 50,000 barrels per day because oil prices had fallen to $65 a barrel, in an apparent reference to world crude prices -- as opposed to Venezuela's own cheaper crude.

"The price of a barrel of oil today should not fall below 60 dollars. That is a fair price," he said in a speech promoting Venezuelan scientific programs.I guess he knows what a fair price is better than the market does. Maybe he should get a Nobel Prize in economics.
Only three days ago, Chavez a fair price was $50 a barrel. But at that time it was not clear if he was talking about world or Venezuelan domestic prices.

Venezuela's own crude, which is generally below-average quality, has fallen toward $50 a barrel in recent weeks.

Meanwhile...

SINGAPORE, Oct. 4, 2006

(AP) Oil prices fell for a third day Wednesday after settling the day before at a seven-month low amid signs of rising global supplies.

Light sweet crude for November delivery fell 18 cents to $58.50 a barrel in midafternoon Asian electronic trading on the New York Mercantile Exchange.

November Brent crude fell 41 cents to $58.02 at London's ICE Futures exchange.

[Darth Rotor]

Link (http://today.reuters.com/news/articlenews.aspx?type=businessNews&storyid=2006-10-04T043439Z_01_B427558_RTRUKOC_0_US-ENERGY-VENEZUELA-PRICE.xml&src=rss&rpc=23)
I guess he knows what a fair price is better than the market does. Maybe he should get a Nobel Prize in economics.
Meanwhile...
Fair. An interesting concept, from dear old Hugo.

What was the price of crude three years ago?

What is so magical about 60 dollars per barrel? Could it have to do with his 3 and 5 year budget forecasts, and his arms purchase plans?

Perish the thought.

DR

[geni]

I guess he knows what a fair price is better than the market does. Maybe he should get a Nobel Prize in economics.

The market isn't that relivant this is oil we are tlaking about.

[BPSCG]

The market isn't that relivant this is oil we are tlaking about.:confused:

Care to explain (this should be interesting...)?

[WildCat]

:confused:

Care to explain (this should be interesting...)?
Come on BPSCG, everyone knows the Republican Party controls oil prices. ;)

[geni]

:confused:

Care to explain (this should be interesting...)?

OPEC have a long history of preventing a free market in oil appearing.

There are other problems such as the way oil is sold inflateing certain currencies but OPEC is the main reason why the free market has traditionaly only had a limited ability to decide oil prices.

[Darth Rotor]

OPEC have a long history of preventing a free market in oil appearing.

There are other problems such as the way oil is sold inflateing certain currencies but OPEC is the main reason why the free market has traditionaly only had a limited ability to decide oil prices.
More specifically, when that particular syndicate agrees to production quotas, or limits production thresholds (and members don't cheat, which occasionally happens) they have a significant input to global supply, which influences bidding prices on both long and short term contracts in the market.

DR

[WildCat]

OPEC have a long history of preventing a free market in oil appearing.

There are other problems such as the way oil is sold inflateing certain currencies but OPEC is the main reason why the free market has traditionaly only had a limited ability to decide oil prices.
To be precise, OPEC can only control their portion of the oil supply, which will then have an effect on prices. But this is a rather clumsy and indirect way to try to control prices, and has sometimes worked, sometimes not. The late 90's were not good years for OPEC. And in any cartel, the incentive to cheat is always present.

eta: The recent fluctuations in oil prices had little to do w/ supply, and everything to do w/ fear of wars in producing nations (esp. Iran), and even weather in the Gulf of Mexico.

[geni]

To be precise, OPEC can only control their portion of the oil supply, which will then have an effect on prices. But this is a rather clumsy and indirect way to try to control prices, and has sometimes worked, sometimes not. The late 90's were not good years for OPEC. And in any cartel, the incentive to cheat is always present.

eta: The recent fluctuations in oil prices had little to do w/ supply, and everything to do w/ fear of wars in producing nations (esp. Iran), and even weather in the Gulf of Mexico.

Of course last I heard opecs target price was 30$ a barrel. Chavez is simply suggesting that they aim somewhat higher. What do you think would happen if saudia arabia cut oil production at the moment?

[WildCat]

Of course last I heard opecs target price was 30$ a barrel. Chavez is simply suggesting that they aim somewhat higher. What do you think would happen if saudia arabia cut oil production at the moment?
I think if OPEC pushes prices up any higher than they ae now and manage to keep them there alternate energy sources will look a lot better (esp. nuclear), energy conservation will greatly increase, and OPEC nations long-term economic viability will be in serious trouble.

SA and most other OPEC nations know this, and don't want to upset the apple cart. Chavez is too much influenced by the short-term to have seriously considered a real long-term oil pricing strategy. I doubt he'll get his way.

[geni]

I think if OPEC pushes prices up any higher than they ae now and manage to keep them there alternate energy sources will look a lot better (esp. nuclear), energy conservation will greatly increase, and OPEC nations long-term economic viability will be in serious trouble.

SA and most other OPEC nations know this, and don't want to upset the apple cart.

That assumes they have been truthful about the size of their oil resevers.



Chavez is too much influenced by the short-term to have seriously considered a real long-term oil pricing strategy. I doubt he'll get his way.

It is somewhat unlikely. A swtichover to the euro for oil priceing would be about the only way it could rationaly happen.

[FreeChile]

Of course last I heard opecs target price was 30$ a barrel. Chavez is simply suggesting that they aim somewhat higher. What do you think would happen if saudia arabia cut oil production at the moment?
Economically, what should happen is that SA reduce its production like Venezuela. When the price is higher, suppliers prefer to sell more to improve their profits. Likewise, when the price is lower, the supply should be decreased.

[FreeChile]

OPEC have a long history of preventing a free market in oil appearing.

There are other problems such as the way oil is sold inflateing certain currencies but OPEC is the main reason why the free market has traditionaly only had a limited ability to decide oil prices.
Indeed! Their mission is to control the price of oil. Chavez is simply appealing to the OPEC. I would think Iran would also say the same thing right now and I woulnd't be surprised if both decided to highten their rhetoric against the US to force higher prices right now.

http://www.opec.org

OPEC’s mission is to coordinate & unify the petroleum policies of Member Countries & ensure the stabilization of oil prices in order to secure an efficient, economic & regular supply of petroleum to consumers, a steady income to producers & a fair return on capital to those investing in the petroleum industry.

[fuelair]

I think Chavez should not fall below two kilometers - so let's push him out of a plane at 2 1/2. No parachute though - messes up the elegant mathmatics. He should make a really great impression!!

[Huntster]

Chavez Says Oil Should Not Fall Below $60/Barrel

I suppose he'd say such a thing.

If it does, his "BIG" voice is all of a sudden very insignificant.

Frankly, even though Alaska state and local politicians would be screaming the blues, I hope oil goes back down to $15.

In fact, I'd love to see it go lower...........

[geni]

I suppose he'd say such a thing.

If it does, his "BIG" voice is all of a sudden very insignificant.

Frankly, even though Alaska state and local politicians would be screaming the blues, I hope oil goes back down to $15.

In fact, I'd love to see it go lower...........

What you want is rather irrelivant unless you happen to be a major oil producer.

[FreeChile]

:confused:

Care to explain (this should be interesting...)?
Here's how.

http://www.nytimes.com/aponline/business/AP-Oil-Prices.html?hp&ex=1160107200&en=761b1be0dcf304a1&ei=5094&partner=homepage

Oil Prices Rise on Reports of Possible OPEC Cuts

By THE ASSOCIATED PRESS
Published: October 5, 2006
Filed at 9:16 a.m. ET

LONDON (AP) -- Oil prices shot up Thursday after OPEC's president said the cartel is considering an emergency meeting to discuss cuts in output.

Dow Jones Newswires, citing an OPEC governor, said OPEC ministers agreed to cut 1 million barrels a day from its current oil production levels, with Saudi Arabia cutting 300,000 barrels per day, effective as soon as possible.

[BPSCG]

Here's how.

http://www.nytimes.com/aponline/business/AP-Oil-Prices.html?hp&ex=1160107200&en=761b1be0dcf304a1&ei=5094&partner=homepage


This really isn't an explanation of how the market isn't relevant, which is what gemi was claiming.

If OPEC does in fact lower production, then market forces will raise the price of oil. And if they increase production, market forces will lower the price of oil.

My point is, for Chavez to claim that some arbitrary price is too low is silly. The supply and the demand determine what the price will be. And if supply goes down, whether due to natural causes (hurricanes that wreck refineries) or man-made (restrictions, cut-backs, or embargoes), the price will tend to go up.

For a very old critique of Chavez's kind of thinking, see here (http://en.wikipedia.org/wiki/Canute_the_Great).

[FreeChile]

For a very old critique of Chavez's kind of thinking, see here (http://en.wikipedia.org/wiki/Canute_the_Great).
I don't have a clue what you are referring to. Perhaps you can explain Chavez's thinking in comparison with Canute's.

[Huntster]

Originally Posted by Huntster
I suppose he'd say such a thing.

If it does, his "BIG" voice is all of a sudden very insignificant.

Frankly, even though Alaska state and local politicians would be screaming the blues, I hope oil goes back down to $15.

In fact, I'd love to see it go lower...........
What you want is rather irrelivant unless you happen to be a major oil producer.

Sometimes what they want is irrelevant, too: (http://www.aapg.org/explorer/2006/01jan/crash.cfm)

This year the petroleum industry observes the 20th anniversary of the Oil Price Collapse of 1986.

No one in the industry who went through that time will, or can, forget it.

In less than 12 months, world crude oil prices fell by more than 60 percent.

The global oil and gas business collapsed like air screaming through the neck of an over-inflated balloon.

Hundreds of thousands of oil workers were laid off.

Texas reported 366,200 jobs related to oil and gas extraction and oilfield equipment in the early 1980s, according to the Federal Reserve Bank of Dallas.

By 1987, only a year after the price collapse, 175,000 of those jobs had vanished.

Company divisions evaporated.

"There were guys with doctorates flipping burgers," is a comment you'll still hear in Houston oil firm offices.

The biggest employer of petroleum engineers after 1986 was said to be Safeway grocery stores.

Texas alone -- just Texas -- lost more than $1 billion in oil and gas severance taxes.

Australia's oil industry spent $740.4 million on petroleum exploration in 1984, according to the Australian Bureau of Statistics.

In 1987, it spent $346.4 million.

The Oil Price Collapse of 1986, coming so quickly and cutting so deeply, created a mindset in the global oil industry that persists to today......

[BPSCG]

I don't have a clue what you are referring to. Perhaps you can explain Chavez's thinking in comparison with Canute's.The story of Canute and the tides. According to the legend, Canute's courtiers tried flattering him by telling him how powerful he was. One version of the story is that his courtiers claimed he was so great that he could stop the tide, while the other version says they didn't make that specific claim, but that Canute didn't care for the ass-kissing. Either way, he took his court out to the beach and demonstrated for his ass-kissing court that he wasn't as powerful as they claimed; he couldn't even stop the tide from coming in and getting his feet wet. Canute understood there were forces beyond his control.

Chavez, by contrast...

[FreeChile]

This really isn't an explanation of how the market isn't relevant, which is what gemi was claiming.

If OPEC does in fact lower production, then market forces will raise the price of oil. And if they increase production, market forces will lower the price of oil.

My point is, for Chavez to claim that some arbitrary price is too low is silly. The supply and the demand determine what the price will be. And if supply goes down, whether due to natural causes (hurricanes that wreck refineries) or man-made (restrictions, cut-backs, or embargoes), the price will tend to go up.
You are correct in saying that Chavez cannot control the market--maybe if he invaded an oil producer like Colombia and controlled their supply. And even that would be temporary. However, I don't find his game to be at all silly. Every producer wants to keep prices the highest possible and as the market shifts, they tend to lower their prices much more slower than they would raise them. So I see this simply as a bargaining campaign on the part of the OPEC countries.

Here is what OPEC says about the setting of oil prices.

http://www.opec.org/library/FAQs/aboutOPEC/q20.htm

[FreeChile]

The story of Canute and the tides. According to the legend, Canute's courtiers tried flattering him by telling him how powerful he was. One version of the story is that his courtiers claimed he was so great that he could stop the tide, while the other version says they didn't make that specific claim, but that Canute didn't care for the ass-kissing. Either way, he took his court out to the beach and demonstrated for his ass-kissing court that he wasn't as powerful as they claimed; he couldn't even stop the tide from coming in and getting his feet wet. Canute understood there were forces beyond his control.

Chavez, by contrast...
I thought you were implying Canute and Chavez were similar and not different in that respect. So I was looking to connect the other version of the story.

[BPSCG]

You are correct in saying that Chavez cannot control the market--maybe if he invaded an oil producer like Colombia and controlled their supply. Even if he invaded the middle east and controlled all the oil there, too, it wouldn't make any difference. The price of the oil would be determined by the supply of oil and the demand for it - not who controls it. If Chavez controlled all the world's oil, but kept output where it is today, it would sell for the same as it's selling today. If he thought the price was too low, he would have no choice but to cut back production if he wanted to raise the price.

Communists tried for decades to determine what the "proper" price would be for all kinds of commodities; this is just the latest example. It was a catastrophic failure, because trying to defy the laws of supply and demand is ultimately just as fruitless as trying to defy the law of gravity - the results are just not as sudden.

The job of a businessman is to make money for his company. To do that, he has to try to figure out at what point the supply curve and the demand curve intersect to provide the highest profit. Set your price too low, and you'll sell all you can deliver, but you might not recover your costs of production (in other words, you lose money). Set your price too high, and you might not sell enough units to recover your costs of production (again, you lose money).

So, is sixty bucks the "right" price for oil? If you think it is, then demand sixty bucks for it. If you sell all your oil and have to turn people away, sixty is in fact too low. If, OTOH, you don't sell enough to cover your expenses, it's obviously way too high.

The right price? It's whatever the buyer is willing to pay and the seller is willing to accept. One man can't decide that.