Oil Market News

Lots of good oil market news today for consumers; a bit less good if energy stocks comprise a substantial share of your investments! A Platts survey of OPEC production shows a huge increase in May, according to a press release on Yahoo Financial News. Iraq coming back online and Venezuela increasing production after the oil strike and the failed Chavez coup attempt accounted for much of the increase. Interestingly, though, all countries with a stated production quota overproduced. It’s a beautiful illustration of why cartels are unstable and usually fail to sustain price increases; if you scroll down to the table showing production and quota by country, each country is exceeding its quota by a pretty small amount. But when you add up these little violations it’s enough additional production to stem price increases in the world oil market. We can especially expect Venezuela to continue producing beyond its quota, notwithstanding its strident rhetoric of the past two years, because of the government’s revenue requirements. Their incentive to make money in the short run by taking market share from other producers outweighs their long-run incentive to stabilize the cartel at a higher price.