By DemocracyRules
The general trend is downward, and the price may soon descend below $50. Inventories remain very high, and oil investors are deeply worried about weakness in the US economy.
OPEC agreed to cut output in October, but several members, including Nigeria, are openly cheating, exceeding their oil output quotas. They are all tempted to cheat. OPEC is a cartel which tries to keep oil prices artificially high. If OPEC drops its overall output levels, this is supposed to keep the price up. But then it's tempting for each OPEC member to cheat, and jack up their output, to make as much money as possible on the artificially high price.
They are especially tempted to do this when oil prices decline. OPEC was very weak in 1999, when oil was about $11 per barrel. They are talking about a new round of cuts, but it's not likely to have much effect on oil prices when OPEC has such poor internal discipline.
Furthermore, countries like Russia are not OPEC members, so they can produce as much as they want and get away with it. But it does not help Russia much, because the oil price is so low.
Iran claims their economy will remain strong even if oil goes to $5 per barrel, but of course that's just silly talk. Persians are a wonderfully gracious and patient people, but they're not very good at oratory. There is no doubt about it. Iran, Russia, Venezuela, Libya and all the other rogue states are in deep trouble, and the lower oil goes, and the longer it stays low, the more they will suffer. Even China is in deep trouble.
Russia struts around, talking big and sending ships to Venezuela, but the military cognoscenti know Russia has few ships that can even make it there and back, and they can barely afford the cost to fuel the vessels. Putin is dramatically cutting the Russian military, and laying off tens of thousands of officers.
With very weak oil revenues, Putin's dreams of a massive new Navy, powerful new missiles, and a resurgent air force are complete fantasy. Even before the economic crisis, the Russian people were poor, and pensioners were starving. The Ruble is tanking, and Russian stocks are now worth about 25% of what they were in May 08.
Pro Patria
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