OPEC Production Cuts Are BEARISH For Oil

On the question of oil, I'm not going to pretend I'm a disinterested spectator here given that my portfolio would greatly benefit from declining oil prices. However, I can't help but think that OPEC's decision to cut oil production is actually bearish for crude.

Why on Earth would OPEC want to cut production with oil hovering around $100 a barrel? Even though oil is down significantly from its highs, that's still a whole bunch of money for a barrel of oil. So the only possible reason they could have for cutting output is that they're freaked out by the price action.

Let's wind back the clock to when the SEC decided to start selectively enforcing naked shorting rules that were already on the books. That didn't stop Fannie Mae (FNM) and Freddie Mac (FRE) from going out of business. Major beaurocratic bodies are not good at controlling markets for any extended period of time, and I don't expect OPEC and oil to be any different.

Outside of geopolitics, oil prices will be determined by the global decline in economic demand, particularly the extent to which growth in emerging markets like China slows. At the same time, we're finally seeing demand destruction as consumers and businesses are squarely focused on cutting energy costs. This is coming in the form of trends like the transition to smaller, more fuel-efficient cars, and the "buy local" movement.

Oil is up about a buck as I write this, but I have a hunch it will be in the red by the close of trading today.