Boy, do the business media -- those gullible little devils -- fall for every faint little promise. We've seen it before: A company makes an announcement about what it plans to do, and the business media invariably interpret it as a given, already done. We've seen it happen with announcements of stock buybacks and job cuts. Now we're seeing it with oil production.
Lame. But, somehow, totally predictable.
For those of you who haven't been on planet Earth for the past few months, just know that the price of oil has declined a remarkable 50% since July. Oil prices, of course, effect almost every company going, especially the likes of
. Into this vortex walked OPEC oil producers yesterday. They announced a production cut. Actually, they announced plans to announce a production cut on Friday. It will be, possibly, the first of two production cuts.
But even if the announcement comes to pass, it is a long-shot that a production cut of that order will actually come about.
At this point, The Business Press Maven will have to tell you outright and up top, because the business media won't: OPEC's history of sticking to output cuts in a fast-declining market is abysmal. Really abysmal.
OPEC member countries all have their own troubles, and so they cheat, producing more than promised, more than announced. Why? Their budgets have oil at close to $150 a barrel, which means that to maintain their projections, they have to sell twice as many barrels where the market is now, in the low $70s. Self-interest rules over the standing of the entire OPEC group. Members cheat and produce more than they say they will. Promises -- or, in this case, the promise to make a promise -- fall flatter than a pancake.
Do the business media make this clear? Negative.
Look at these two articles. One came late yesterday from
and completely missed the fact that what OPEC announces is not what it actually produces. The other, from the
, at least made references to the issue of rivalries and self-interest, but it fell far short of spelling out reality from the start.
. Notice how the language in the lead
confuses the issue
of announcing a cut with the actually slashing of production: "OPEC oil producers may cut oil supplies in two rounds, one when they meet next week in Vienna and a second later on, to drain oil supply surplus off markets and firm up prices, the group president on Sunday."
thinks it is being responsible in using the word "may." As in, it might happen or might not. But by saying "may cut" instead of "may announce a cut,"
confuses the savvy investor, who might not know how unlikely it is that OPEC will stick with an announced cut in such a shrinking market.
The second line is built around a quote questioning whether OPEC will truly cut by 2 million barrels, when it might only be 1 million. And whether 1 or 2, the article talks about the cut as if it's a forgone conclusion: "'It is not clear that we will take the decision to reduce supplies by 2 million barrels per day but it very likely that we will take a reduction decision this time and another decision later on to ensure prices stability,' Chakib Khelil
OPEC's president told Algerian state television."
We then hear about pressure within OPEC, but it is only framed as confirmation that the reductions will go through. That is highly irresponsible. Pressure within OPEC because of falling prices is part of what pits member nation against member nation and causes agreements to fall apart. Look at these lines, put out there without perspective, about how pressure means reduction:
"Pressure is mounting within OPEC to reduce supplies as oil prices have fallen more than 50 percent from July's record of $147.27 and expectations have grown that a global recession will erode fuel demand.
"'I think firstly there is a consensus over the meeting among OPEC members, then an urgency for all members. So, there is no doubt that all members agree that oil inventories are very high and supply is higher than demand by around 2 million barrels per day,' said Khelil."
"This shamefully misleading article ends, appropriately enough, by turning itself over to a Khelil claim about how they are in it for the good of the world economy.
"'All the needs of consumer countries will be fully satisfied because OPEC members want not to see the global economy deteriorating as it is now,' he added."
Uh, hate to tell you,
, but this quote is utter nonsense. If OPEC were such a force for wider economic good, why would it be engaged in talk about price-increasing production cuts in the first place?
Luckily, it will have trouble implementing the cuts, which the
at least makes some mention of. The article also makes similar mistakes to
, but at least by the middle we get some true
sense of the matter
with lines like this:
"Independent Kuwaiti oil analyst Kamel A. Al-Harami agrees. He argues that given such a delicate balancing act, disagreements are likely at the meeting between dovish Saudi Arabia and traditional price hawks like Iran.
"Even if the members agree on a production cut, 1 million barrels will not be enough and `there will be cheating on the quotas from day one,' said Al-Harami, who served as former president of Q8, the retail arm of the Kuwait Petroleum Corp."
And soon, music to The Business Press Maven's ears: "The stakes are high -- both for a meaningful production cut and for quota compliance, something on which OPEC has typically fared poorly."
Look: When it comes to job cuts, stock buybacks and especially oil production cuts in a declining market, announcements are nothing more than that. They should never be confused with the follow-through.
At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.
Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page. For his "Business Press Maven? column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers. Fuchs appreciates your feedback;
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