View Full Version : The Death of OPEC?

Thursday, September 11th, 2008, 07:43 PM
I honestly don't know what to think, good or bad?

Saudi Arabia walked out on OPEC yesterday. It said it would not honor the cartel's production cut. It was tired of rants from Hugo Chavez of Venezuela and the well-dressed oil minister from Iran.

As the world's largest crude exporter, the kingdom in the desert took its ball and went home.

As the Saudis left the building the message was shockingly clear. According to The New York Times, “Saudi Arabia will meet the market’s demand,” a senior OPEC delegate said. “We will see what the market requires and we will not leave a customer without oil."

OPEC will still have lavish meetings and a nifty headquarters in Vienna, Austria, but the Saudis have made certain the the organization has lost its teeth. Even though the cartel argued that the sudden drop in crude as due to "over-supply", OPEC's most powerful member knows that the drop may only be temporary. Cold weather later this year could put pressure on prices. So could a decision by Russia that it wants to "punish" the US and EU for a time. That political battle is only at its beginning.

The downward pressure on oil got a second hand. Brazil has confirmed another huge oil deposit to add to one it discovered off-shore earlier this year. The first field uncovered by Petrobras has the promise of being one of the largest in the world. That breadth of that deposit has now expanded.

OPEC needs that Saudis to have any credibility in terms of pricing, supply, and the ongoing success of its bully pulpit. By failing to keep its most critical member it forfeits its leverage.

OPEC has made no announcement to the effect that it is dissolving, but the process is already over

Source (http://blogs.moneycentral.msn.com/topstocks/archive/2008/09/11/the-death-of-opec.aspx)

Thursday, September 11th, 2008, 08:00 PM
In the 1970s, OPEC was treated in the press as one of the worst villains on the world stage. Later, analysts caught on that the oil producers had to invest their money somewhere, and for the most part that somewhere was the US and Europe. Oil producers became dependent on our economic health and so held back from price gouging and using oil as a political weapon.

I expect that Iran and Venezuela have more leeway to put their oil production at the service of their demagogic leaders because they have more internal options for investment.

Friday, September 12th, 2008, 08:24 AM
It's certainly good for us, as it will bring oil prices down.

Some factors which may be effecting this:

Saudi Arabia&UAE want to retain decent relations with the US, Iran and Venezuela just don't care as they already over the waterfall in that regard. Venezuela in particular seems intent on trying to provoke some sort of response. Especially with the election coming up in the US and oil/gas prices being a major issue, Saudi Arabia probably wants to avoid being blamed.

Depending on how much oil prices are currently driven up by speculation, this situation will not last forever, and Saudi Arabia/UAE probably want to get as much money as they can while this situation lasts. The regimes in Iran and Venezuela don't seem particuarly bright and may not understand this. I wouldn't be surprised if Saudi Arabia and Dubai sovereign wealth funds engage in 'insider trading' on oil futures, perhaps via proxies, Iran&Venezuela don't have massive investment funds in the US, which also explains why Saudi Arabia & Dubai are cautious not to damage western economies too much, whereas Iran & Venezuela would be quite happy to see them collapse.

Saudi Arabia actually has excess capacity, whereas Venezuela's has been declining ever since Chavez seized personal control over the oil fields and diverting money towards maintaining political power instead of maintaining the fields. Iran may also be doing this to build up its military, and might also be hurt by trade sanctions on them.

Friday, September 12th, 2008, 09:13 AM
Interesting. All I know is that I want cheaper gas!