OPEC

Saudi and foreign investors attend the kingdom's Global Competitiveness Forum in 2016 in Riyadh. Photo: Getty Images.

At the OPEC meeting held in Vienna on 22 June, Saudi Arabia successfully pushed for an increase in oil production, despite opposition from Iran, Iraq and other smaller producers within the organization. But this victory may yet prove hollow, as the kingdom’s biggest challenge when it comes to balancing production and prices is domestic.

On the one hand, keeping oil prices low helps secure Saudi Arabia’s market share, satisfy the US and increase pressure on Iran. On the other, it is in its interests to keep potential revenues at a level that will maximize the value of its intended initial public offering (IPO) of a stake in Saudi Aramco, the world’s largest oil company, as well as boost the prospects of Vision 2030 – the wide-ranging economic diversification plan closely associated with Crown Prince Mohammed bin Salman.…  Seguir leyendo »

News that an agreement to cut OPEC production was reached came as no surprise, as the hype surrounding the November 30 meeting would have led to a price collapse if a deal was not struck, especially in light of the Algiers agreement to cut back in September.

Fear of this potential collapse was sufficient to sideline the real and deep divisions between Riyadh and Tehran that go far beyond oil. Some form of agreement, no matter how anodyne was essential and, as expected, the market immediately responded positively with typical irrational exuberance as Brent quickly moved above $54 per barrel.

But a more careful reflection suggests that the deal is unlikely to support prices much higher for any period of time, due to several factors.…  Seguir leyendo »

“The market can stay irrational longer than you can stay solvent,” said John Maynard Keynes (or maybe it wasn’t him, but no matter). At any rate, that was the eternal verity the Saudi Arabians were counting on when they decided to let oil production rip — and the oil price collapse — in late 2014.

The Saudi objective was to keep the oil price low enough, long enough, to drive American shale oil producers out of business and preserve the OPEC cartel’s market share. (The Organization of Petroleum Exporting Countries controls only 30 percent of world oil production, which is already very low for what was meant to be a price-fixing cartel.)

The end of sanctions against Iran and that country’s push to raise production and regain its old market share put further downward pressure on the oil price.…  Seguir leyendo »

The failure of the Organization of Petroleum Exporting Countries to reach any meaningful agreement at their meeting in Vienna on Friday confirmed that the historic storm besetting the oil market has markedly reduced this once-powerful group’s effectiveness and influence.

Far from adding an element of stability, an internally divided OPEC will contribute to further volatility in oil markets, with prices remaining low for longer than many anticipated.

The oil market is being battered by a perfect storm, as three distinct forces come together. The supply side has been destabilized by the rapid encroachment of shale energy technology. The demand side is undermined by declining global growth in general, and the sharper relative fall in emerging economies in particular.…  Seguir leyendo »

A historic change of roles is at the heart of the clamor and turmoil over the collapse of oil prices, which have plummeted by 50 percent since September. For decades, Saudi Arabia, backed by the Persian Gulf emirates, was described as the “swing producer.” With its immense production capacity, it could raise or lower its output to help the global market adjust to shortages or surpluses.

But on Nov. 27, at the OPEC meeting in Vienna, Saudi Arabia effectively resigned from that role and OPEC handed over all responsibility for oil prices to the market, which the Saudi oil minister, Ali Al-Naimi, predicted would “stabilize itself eventually.” OPEC’s decision was hardly unanimous.…  Seguir leyendo »

This month marks the 40th anniversary of the Organization of the Petroleum Exporting Countries embargo against the United States and states that supported Israel after Egypt and Syria initiated simultaneous offensives against it on Yom Kippur in 1973. While it’s not an anniversary that many will celebrate, it’s a good opportunity to reflect on how much more secure our energy situation is, despite our continued heavy reliance on fossil fuels.

Most commentators have focused, with good reason, on the West’s greatly enhanced ability to withstand similar shocks were they to occur today. Equally important, although generally overlooked, is the reality that OPEC has no incentive or real ability to inflict them on the world.…  Seguir leyendo »

By Thomas W. Evans, an adviser to Presidents Ronald Reagan and George H. W. Bush and the author of The Education of Ronald Reagan (THE NEW YORK TIMES, 19/06/08):

The president of the United States has the power to attack, and perhaps destroy, the Organization of the Petroleum Exporting Countries, the illegal cartel that has driven the price of oil over $130 per barrel. This can be accomplished without invasion or bombing. No special legislation is needed. The president need simply allow the states to seek relief in the Supreme Court under our antitrust laws.

The oil ministers of the OPEC countries meet periodically to set production quotas for the cartel’s members and in the process establish an artificially high price for crude oil.…  Seguir leyendo »

By Robert J. Samuelson (THE WASHINGTON POST, 12/03/08):

For much of its 47-year existence, the Organization of the Petroleum Exporting Countries has been a cartel in name only. It could not control oil prices because many of its members regularly breached the production quotas that were intended to regulate the market. So OPEC followed oil prices up and down, as supply and demand shifted. But now OPEC may be the real deal: a cartel that works. If so, that’s bad news for the rest of the world.

Look no further than last week’s OPEC meeting in Vienna. Oil ministers declined to increase production despite a strong case for doing so.…  Seguir leyendo »