This is a two part story.
1. On Wednesdays the US releases oil supply numbers at 9:30 Iowa time. I, of course, catch the announcement on CNBC whenever I can. (Stop saying "geek". I can hear you.)
Often the announcement is no big deal because it falls in line with what the market already expected. This past Wednesday they announced a much larger oil inventory than expected. The price dropped from $38 to $36 in less than a minute.
OPEC panicked and five minutes later released a statement that they were cutting oil production by 4.2 million barrels.
Holy production cuts, Batman, that's the biggest cut ever!
By 10:40 oil was trading at $40. For those of you playing along at home that's a drop of $2 and a raise of $4 in less than 10 minutes. I got whiplash watching the chart.
Then traders read the full report from OPEC. The 4.2 million figure included a 2 million cut in September. The real cut is 2.2 million, which is what the market expected all along. Not surprisingly, oil started dropping.
By Friday it went below $34/barrel. Stunning. The market told OPEC, "Don't get cute. Tell us the real news. You played a stunt and that tells us you can't get your act together."
*****
2. The drop was amazing, but not as amazing as it may have seemed. $1.00 gas is not on the horizon.
Basically, there is a glut of oil in refineries in the US right now AND fog has kept oil tankers from docking in Houston. Therefore, delivery for oil in January has absolutely cratered - down to below $34.
Oil for February is at $42.
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