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| International-UN-NGOs |
| OPEC Losing Its Muscle |
| 2008-12-20 |
| OPEC's oil chiefs were almost begging to be taken seriously on the eve of their conference in Oran, Algeria. When Saudi Oil Minister Ali al-Naimi arrived at the Sheraton, a big glass-and-steel building in the hills above the city, he told the waiting scrum of reporters that OPEC planned to cut production by a big number. Sure enough, on Dec. 17, OPEC announced cuts that amounted to 2.2 million barrels a day. Unimpressed, the market for crude drifted lower, to around $40 (€28). This was the fourth meeting of OPEC since September. Two of them were hastily convened emergency sessions. Before Oran, the organization had announced 2 million barrels in cuts over the last three months. None of this has been enough to stem a plunge from the July peak of $147 per barrel. Despite the big cuts of Dec. 17, OPEC's hopes are modest. Its target may be $75 a barrel, but a delegate from the Gulf doubted the price would exceed $55 in the first half of 2009. "OPEC is turning into an increasingly irrelevant organization," said Sanford C. Bernstein analyst Neil McMahon on a recent conference call. Why is OPEC's reputation taking such a hit? The market views it as having let things get out of control when prices were surging. Now the cartel can't seem to contain a downward slide, either. "I don't think they even have compliance on [the cuts] they've already done," says John Hall, a London-based analyst attending the conference. OPEC adopts production quotas for each of its members, but it rarely adheres to them. OPEC delegates reckon the 1.5 million- barrel-per-day cut announced in October reduced production by only 1 million barrels -- nearly all of it from Saudi Arabia. The situation recalls the late 1990s when a fractious OPEC watched prices hit record lows. Today the organization is trying to present a united front, but profound differences exist. On the one hand are the Saudis and other Persian Gulf states. They are the only countries with enough production capacity to make big cuts. Yet they don't want to inflict further damage on the global economy by forcing prices too high. Then there are the hardliners like Iran and Venezuela that want sharply higher prices to support their social programs. Crude prices are well below the $100 per barrel and $86 per barrel Venezuela and Iran need to pay their bills, according to Washington consultant PFC Energy. As OPEC strives to retain its clout, a glut is emerging that could drive prices even lower. Off Iran's Kharg Island oil terminal are seven supertankers laden with Iranian crude. Iran is storing oil on board in hopes of higher prices later, according to an industry source. Worldwide, an estimated 21 ships are holding about 40 million barrels. At the end of October there were just five. That means producers have been churning out 750,000 to 1 million barrels a day for which there are no ready buyers. With the production cuts, OPEC is simply trying to avoid swamping the world with oil. |
| Posted by:Fred |
| #10 "Iran and Venezuela that want sharply higher prices to support their social programs. Crude prices are well below the $100 per barrel and $86 per barrel Venezuela and Iran need to pay their bills" Awwwwwww, ain't that just too bad. My heart just aches for them. No, wait - it's just the chili.... |
| Posted by: Barbara Skolaut 2008-12-20 21:05 |
| #9 CP - I agree this time - smart to stockpile refined & special use, especially mil fuel |
| Posted by: Frank G 2008-12-20 18:42 |
| #8 Actually, during the high prices there WERE a lot of tankers being used to store oil, just apparently not by Iran. It was getting hard to get a tanker to use to transport oil because so many were being rented as floating storage tanks. The Saudis ramped up production when prices spiked to try to bring prices down but there were no takers for the oil. Having nowhere to put the oil, they were forced to reduce production. Oil storage in Oklahoma where the oil traded on the commodity exchanges is stored is nearly full. There is about one or two week's storage supply left at the current fill rate and it is done. I have no idea where they are going to start putting the oil. Part of the problem is that this month's contract was less than next months contract so people are taking delivery on this month's oil in order to write contracts at next month's price ... a guaranteed money maker at the moment. So as they take delivery and store it in Oklahoma, the storage facility fills up. Right now would be an excellent time to expand the strategic reserve but only in sips. Or maybe since demand is down we should build up a strategic reserve of refined products like jet fuel and diesel that can be used by the military in a time of crisis without drawing off of other domestic supplies. Convert an old military base to a storage depot for diesel and jet fuel. |
| Posted by: crosspatch 2008-12-20 17:55 |
| #7 This has a ripple effect too as Venezuela will have to cut assistance to Nicaragua, Bolivia, and Cuba and rich Saudis will reduce support to various terrorist groups. |
| Posted by: Odysseus 2008-12-20 14:45 |
| #6 when the US economy has a cold, the world economy has the flu.... a.k.a. sow the wind, reap a whirlwind; re: chickens coming home to roost. |
| Posted by: Scooter McGruder 2008-12-20 14:19 |
| #5 Why help them by taking oil off the market. Leave those tankers alone. The Saudis know how to get the attention of the cheaters.... and it ain't by cutting production. |
| Posted by: .5MT 2008-12-20 13:46 |
| #4 That sounds like a great little target for the Mossad |
| Posted by: Hellfish 2008-12-20 09:01 |
| #3 Off Iran's Kharg Island oil terminal are seven supertankers laden with Iranian crude. Iran is storing oil on board in hopes Yusef, hand me the target folders please. |
| Posted by: Besoeker 2008-12-20 08:18 |
| #2 Then there are the hardliners like Iran and Venezuela that want sharply higher prices to support their social programs. Crude prices are well below the $100 per barrel and $86 per barrel Venezuela and Iran need to pay their bills, according to Washington consultant PFC Energy Heheheheheheheheheheh |
| Posted by: Boss Sleans2792 2008-12-20 02:21 |
| #1 It is time for you, Ishmael, to learn how to build a bicycle. |
| Posted by: newc 2008-12-20 01:03 |