Oil has fallen to $40 a barrel from nearly $140 less than a year ago. Now that $140 level was the result of a huge spike in the price. But if I owned a bunch of oil (as a country or a company) I sure wouldn’t want to sell it at $40. I would much rather just keep it in the ground and sell it later.
OPEC has reduced quotas in an attempt to react to the global recession. But it strikes me as bad management to sell your resources at these low levels. Now you might have to sell some to service debt and meet fixed expenses. But continuing to sell at these levels instead of just keeping it in the ground and waiting a year or two (or longer) just seems like a very shortsighted action.
Now you would have great difficulty acting on my opinion if you don’t plan ahead. To do so you would need to bank profit when you are selling at high prices so you can ride out low prices without being forced to sell to meet your obligations. And it seems many countries are unable to do that. And my guess is many oil company contracts require production based on what the country wants done.
It just doesn’t seem to me that the I would do much better waiting to sell my oil than sell it at these prices.
Related: Forecasting Oil Prices – Oil Consumption by Country – South Korea To Invest $22 Billion in Overseas Energy Projects – Curious Cat Science and Engineering Blog posts on energy
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Now that the Organization of Petroleum Exporting Countries reduced supplies 13 percent since September, inventories are falling 1.4 million barrels a day…
This is another smart move by China, in my opinion. With the huge amount of cash they are holding, I would rather hold more of it as crude than dollars…
Greedy!
That might be one way to look at it. The other would be that investors have to evaluate when to buy and when to sell. Selling at low prices is a bad investing strategy. Oil is above $70 today.