OPEC signals it wants high oil prices

Sify ^ | Sunday, 27 February , 2005,

[M. Espinola]

Paris: OPEC is sending out signals to the global market that the cartel wants oil prices, at near-record highs, to remain there this year.

Ali al-Nuaimi, oil minister for Saudi Arabia, OPEC’s largest producer, made it clear on Thursday where he expects the US price of a barrel of crude to be: "The price today is between 40 to 50 dollars, and that’s where it will probably stay during 2005."

These statements appear to confirm what analysts have predicted for several months: Riyadh has been changing its views on pricing, after having for a long time defended a price of 25 dollars a barrel.

At present, the price of crude based on OPEC calculations has increased to about the level indicated by the Saudi minister -- it closed Friday in New York at 51.49 dollars, while in London it sold for 49.61 dollars.

Several ministers in the Organization of Petroleum Exporting Countries have hinted at an increase in the past few months, but it was not clear where Saudi Arabia stood. For that reason, analysts have taken note of al-Nuaimis recent remarks.

"I think it’s a signal to the market that there is going to be a big increase in the OPEC price band," said Kevin Norrish, an analyst at Barclays Capital in London.

The Saudis "have certainly laid out that there is going to be further discussions at the next (OPEC) meeting and I think its possible that it will be unveiled."

The 11-nation cartel, which represents 40 per cent of the world’s crude oil production, will next meet on March 16th in Isfahan, Iran.

All graphics added

[JasonC]

Three noticable things on the chart itself. First there is the 3 month valley right at 9-11. That is the airlines shutting down and the Arabs pumping like mad in the immediate aftermath. Then there is a brief "mesa" out of the band immediately before the actual invasion of Iraq. That is war jitters as it becomes clear the attack will take place and people do not know if Iraqi facilities will be destroyed during the war. The rapid recovery back to the middle of the band is due to the quick victory over Iraq's regular forces. Then there is the long slow accelerating move from 25 to 45, which is fears over the US election and with it the prospect that the US might fail and withdraw. When Bush wins anyway you get that collapse to the mid 30s, followed by a half size retracement.

Now, I don't doubt OPEC would like the keep prices up at the level they touched on fears Bush would lose. But the objective political conditions on which those prices were based have largely evaporated. It will take a superheated atmosphere of fears over Iran and nukes etc to maintain them. Minor production cuts etc will not get it done. In the absence of anything remotely threatening US defeat or withdraw from the region, oil prices will retrace to the mid 30s within a year, and probably back under the 30 level within three years.

[SlowBoat407]

Particularly if we react to that price rationally, allow all possible development, economize uses and alternatives, etc.

So how do we make the transition to reacting rationally? Since the oil crisis of 1973, we have only grown more dependent on foreign oil and there doesn't seem to be any change in that course over the next five years, which is the absolute minimum it would take to develop any new sources, including ANWR.

Unfortunately, I tend to fall on the side of foreseeing a "national security" type solution, where oil becomes even more of a catalyst for conflict because it is simply too difficult to overcome the political barriers to self-sufficiency.

That's not to say I advocate such an approach. I just don't see any other resolution on the horizon.

[JasonC]

Sorry, that is just crazy. It presumes the leftists and greens opposing rational policies across the board on this subject are politically unstoppable, when in fact the left is in full retreat. Environmentalist pieties have to be demolished as the political lies they are - something the right has not yet been willing to do, because it sees no reason to hand the left such issues as a weapon, thinks they are bad PR, etc. The left does not have the votes to stop major legislative changes on this subject. Their ideology has gone around the bend far enough that they will not even work with the conservatives whose votes they would need, to do so.

It is purely a matter of political spine among guys on our side, and their calculation of the present state of public opinion and rhetoric. The green position is flimsy, scientifically and as a matter of political alliances. They carry the day in politics because the right is afraid of them, the right is afraid of them largely because of press, the press kowtows without even a pretence of debate because the right does not challenge green BS as the BS it so obviously is.

You come up with a program of environmental regulation that actually makes economic sense and addresses real science but not scaremongering. That acts as your political cover and defense. Then you systematically destroy the greens' regulatory arsenal. You allow new dams to be built. You allow new oil wells to be drilled. You allow new power plants, nuclear included. You regulate real issues like sulphur content of coal but allow new uses of coal when sensible cleaning measures are included. You expedite gas infrastructure held up over pipelines rights and the like. Depreciation and depletion schedules and similar regulatory and tax changes can encourage long term investments in these areas.

The greens had to get the state to systematically block every form of energy investment and development. The state is holding the entire sector back, on purpose. You can make an enourmous difference just by abating this constant interference and pressure in all the wrong directions. If the state wants to see energy development it should stop forbidding energy development and demonizing the entire industry, and instead encourage that industry. Duh.

[Chgogal]

BTTT

[SlowBoat407]

Jason, I agree wholeheartedly with everything you've proposed. The problem is, I do question the political will of the people who have the power to make these things happen. I've seen no reason not to, sadly. I think our president has put out a good plan, and I'm solidly behind it. I worry about Congress, though, and their ability to see through the clutter and do what is absolutely right for this country, which is, let the producers produce.

[q_an_a]

Time for President Bush, via Secty Rice, to let the Saudi family know that if oil is going to be 50.00 we might as well have people we don't like as the sellers i.e. a democratic Saudi government, as to have a royal family. We might offer some economic help to the democratic leaders of a new Saudi Arabia and we may help break up the country into smaller states. OR You might start to get the price of oil back around 30.00.

[JasonC]

The pols are weak in the knees because they do not see the urgency of it on the policy side, and they do not see the right winning the public debate with greens in the red press. They calculate that they will hand their political opponents an issue those opponents will use to beat them up and steal "moderate" (read, impressionable) votes away from them. They think it is politically safer to say "me too" to green silliness, than to fight it. They mistakenly think the policy consequences or stakes involved in doing so, are minor.

They need help from political activists, writers, and pundits, willing to take on the greens ideologically, in public opinion and the press. They need detailed "sensible environmental" proposals, from the think tanks. They need the industry itself to snap out of its seige mentality of public defensiveness (brought on by decades of green interference without any political defense coming to help them), and state forcefully what it needs and what senseless leftisms stand in the way.

Pols in congress aren't going to stand up, realize the economy needs n new plants and the navy needs m barrels per month in a shooting war, carry the 3, and launch a full scale ideological assault on modern enviromentalist ideology. They need leadership (from administration types), education (from real scientists, from industry, from economists in the think tanks), planning (from pundits on the ideology as well as think tanks on the policy), and broad movement support.

But it is all perfectly doable. It is part of being a governing party rather than a minority one, that such campaigns can be planned and conducted, to move opinion and policy in a coordinated fashion, to where they need to go.

[SlowBoat407]

Dang, you talk good! Sign me up!

Seriously, though, you've hit it on the head. We cannot simply depend on people with an "R" after their names to automatically do the right thing. There's too much pressure from the public, from credentialed "experts" with agendas, and from other pols who hold their pet projects hostage.

We need to hold their feet to the fire. We also need to counter, at a grass roots level, all of the lies that have been foisted on us by those who want to see the U.S. held down and who see energy policy as a key means for ensuring that this country remains dependent on the rest of the world.

[JasonC]

So let's get started.

1. Lomberg should get a full scale US speaking tour complete with 50 venues $5000 honorariums. He should meet with the president's science advisor. Lomberg chairs in responsible enviromentalism should be endowed.

2. The Department of Homeland Security should launch a campaign against the Earth Liberation Front, complete with FBI mugshots and briefing papers, regular sober statements of grave concern to the press, and if possible a show trial. Plus regular reports on the potential dangers of domestic nutjob bioterrorism by green freaks. Smear the hell out of them.

3. Frist should be seen reading "State of Fear".

4. Limbaugh should do environmentalist wacko updates continually for three months, take the resulting calls from offended precious holier than thous, and skewer them mercilessly.

5. National Review and the Weekly Standard should do special issues on green craziness. Cover Earth in the Balance, the claim that automobiles will destroy civilization, "deep ecology" types promoting "die back" to hunter gatherer existence, the Human Extinction Movement, etc.

6. The trails of watermelons from hard right to green superregulators should be traced in individual careers and giant silly flowcharts on websites.

7. Details of silliest regulatory hurdles should be collected into conservative expose books. All the dams stopped for no good reason, all the wastelands protected by transparent sophistries, the land grabs, invented "species", wetlands that aren't wet 330 days of the year.

8. All the public money flowing to environmentalist advocacy groups, their grant mills, their "public input" sessions, should be systematically dismantled by executive orders and discretion and rechanneled to conservative advocates of responsible development. No reasoning needs to be given, just blackball them.

I'm just getting warmed up. It'll be lots of fun.

[Dustbunny]

We need to start drilling.

[Zuben Elgenubi]

Any substance to the rumors that OPEC will want to tie in oil pricing to the Euro rather than the dollar? Seems to be an awful lot of internet blogging on this point.

[SlowBoat407]

How about reports from scientists showing how regulation is actually harming the environment! I'm sure the numbers can be jockeyed for that just as easily as they've been jockeyed for the other side of things.

They believe in the power of fear? Let's hit 'em with stats showing what life will be like in a world that lives under Kyoto compliance. Power shortages and outages nationwide, transportation, freight, and communications costs skyrocketing, the simplest features of life that we take for granted today, such as lights, cooking, entertainment and commuting priced out of reach or simply unavailable.

Stats with every volcanic eruption detailing how much material it throws into the atmosphere, compared with human output since the Industrial Revolution.

This is gonna be fun!

[JasonC]

It's easy because it is true. There is a reason their extremists like the die-backers go to those silly lengths - it is because full implimentation of their precious principles would result in the rather immediate death of nine tenths of humanity. The present population, let alone the future one of 50 years from now, can only be supported by the full wealth made possible by modern division of labor and fully powered industry. There is plenty of this in Lomberg, incidentally. Along with scads of ways of getting a hundred times the bang for the buck just doing common sense things instead of catering to green pieties.

[carl in alaska]

"yours is an unusually intelligent reply."

Thank you. I've spent a lot of time doing research and thinking about the oil & gas industry. Trading stocks is a full-time job and I have to give these issues a lot of thought before putting my own capital into any major investment. Those Saturday afternoon "infomercials" on TV about "making $10,000 a month while trading one hour a day with our system" are total BS. I think most people who try that approach lose their shirts....lol.

[carl in alaska]

That's a good point and the Saudis did collapse the price of oil back in 1998 to discipline the rest of OPEC for cheating on production quotas. But right now most estimates for extra OPEC capacity that can be brought online in the next 2-3 years are only about 3 to 4 million barrels per day. Meanwhile demand is growing at about 1.5 million bpd every year. So in just a couple of years nobody will have the ability to increase production and collapse prices. This is why oil companies are now making much bigger investments in offshore drilling and oil sands projects.

The oil service industry is heading into a boom and nobody will be able to stop the boom. This is going to be a terrific opportunity for investing in the oil & gas industry and in a second wave of alternative energy companies that will emerge during the next twenty years in response to high oil & gas prices. Large-scale wind power is becoming economically attractive at today's natural gas prices. I will be putting more research time into energy companies than any into other sector for the forseeable future.

[carl in alaska]

Do you have any interest in starting a weekly Friday-Saturday discussion thread on the energy industry, using a ping list of interested persons? I think eventually you would attract quite a large crowd of participants.

[carl in alaska]

I need to clarify post #35. Based on OPEC's public statements, they have about 3-4 million bpd of extra capacity that can be brought online in the next few years. There's little doubt that they actually have more extra capacity that could go online in a 2-3 years if they start developing those oil fields now. But they don't talk about that production capacity because they're unwilling to develop it. OPEC keeps the West in the dark about their true quantities of reserves and production capacity. This effectively silences criticism from the West as OPEC restricts production to generate steadily increasing prices and hold reserves for higher prices in the next decade. They are indeed very sneaky.

[TexasCowboy]

AV makes some very good points which are unknown unless you work in the O&G industry.

Our industry was decimated in the mid-80s, and we haven't recovered. The confidence is not there to gear up for a boom. Everyone still remembers the bankruptcies and the losses of business' associated with $11. a barrel oil.
No one wants to get caught in that trap again.

We haven't got the equipment or the people for a boom, and unless service companies see some security in the investment, we won't have in the foreseeable future.
Drilling rigs for hire are almost non-existent, but the cost of building new rigs has skyrocketed in the last few years because the price of steel has been dictated by an ever increasing demand from China.

It's true that the number two supplier of our oil, Saudi Arabia, as well as the other MidEast countries, are producing at near capacity and their bump of 4 million barrels a day is not going to have an impact on prices.
What does have a significant impact on prices is the increasing demand from China, but that demand doesn't help our domestic O&G service companies. Most of them don't work in China or anyplace else overseas.

The only incentive which will facilitate a boom in the US O&G industry is a complete change of attitude in Congress.
If it can be seen that Congress is really interested in opening up areas in the US for drilling which have heretofore been off limits, it will provide the confidence factor necessary to build the equipment and raise the payscale to attract workers.
Even then, it will take years to develop the infrastructure necessary for a domestic boom.

[M. Espinola]

You have a capitol idea there and I too believe there would be keen interest. Now if I can figure out how to create a ping list. Let's do it!

[M. Espinola]

Very good ideas referring to those 'good friends' the Wahhabist Saudi 'Royals'.

Maybe once the Iranian situation is fully rectified the internal Arabian problem can be addressed.