Analysts: OPEC Cuts Unnecessary, Even Unrealistic

Oil is up about a dollar today to $62.38. The increase comes on the heels of today’s announcement from OPEC that it will cut production by 500,000 barrels a day starting Feb. 1. The cartel has yet to fully implement the 1.2-million-barrel cut it made back in October. Mark Gilman of the Benchmark Co. says that Saudi Arabia is dead set on a $60 floor for a barrel of crude. But the question remains as to whether the market will allow it or not.

Gilman appeared alongside Roger Diwan of PFC Energy on “Morning Call” with Liz Claman today. Both analysts seemed to think that OPEC’s outlook was off the mark. Gilman, in particular, doubts that the rest of OPEC’s members are feeling any urgency to comply with more cuts, especially at current prices. Besides, he says, historically the cartel doesn’t have a good record of implementing cuts anyway.

Diwan noted that while compliance with the October cut was “better than usual,” the impact hasn’t been felt in the market – and won’t be for another six or seven weeks. That’s about the same time today’s announced cut is supposed to take affect. Diwan thinks that if Saudi Arabia – OPEC’s most influential member and its top producer – is OK with inventory levels come February, then today’s cut will be optional.

Diwan predicts February will be the last cut of 2007 – and the only one OPEC needs to keep oil above his target price for the year: $55.