Global Recession Outweighs OPEC’s Production Cut
October 24th, 2008>>>Market Analysis Commentary>>> OPEC has decided to reduce oil production by 1.5mm barrels per day from its current quota of 28.8mm barrels per day. At the writing of this article, December Crude is down $3.36 (-5.21%) and trading @ 64.59. Concerns of a global recession far outweigh the demand for energy as the Center for Global Energy Studies estimates that global demand will fall in 2008 for the first time in 15 years. Its U.S. counterpart, the IEA, also concurred last month that demand growth is contracting.
OPEC members may find themselves in a catch-22 scenario. Cutting production to support prices during a financial crisis could weaken demand even more. Then again, its members may also be inclined to cheat on their quotas in order to compensate for the reduced revenues caused by lower prices.
Technically, oil has broken through its 200 week moving average and appears headed to test its January 2007 support level @ $50 per barrel. On an intermediate time frame, resistance is @ $70 per barrel.
For a more detailed analysis, please see Rachel Ziemba’s analysis at RGE Monitor.
Related Securities: DUG; USO; XLE; OIH
*Disclosures: None