The Death of OPEC? - Tilted Forum Project Discussion Community

new man · 09-11-2008, 12:15 PM

The death of OPEC
Posted Sep 11 2008, 07:01 AM by Douglas McIntyre Rating: Saudi Arabia walked out on OPEC yesterday, saying 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. “Saudi Arabia will meet the market’s demand,” a senior OPEC delegate told the New York Times. “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 was due to "oversupply", 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. The breadth of that deposit has now expanded.

OPEC needs the 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 about any possibility of dissolving, but the process is already over.

Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.

To me, this is huge and very interesting. From my limited understanding, Saudi Arabia has always been the linchpin that has held OPEC together. With a weakened cartel, oil prices may be more market dependent. This by no means dictates that we should abandon alternative energy policies, but it may give the world a little respite from this crazy market. Assuming Saudi Arabia actually sticks to this.

inBOIL · 09-11-2008, 12:56 PM

I have to assume the Saudis will stick to this plan of action. The fist oil embargo worked because there were no viable alternatives to petroleum. Now, with all the alternative energy sources that are slightly less economical than oil, any price spike has the potential to spark a refinement of these technologies that could make them permanent competitors in the energy market. Saudi Ariabia is afraid, and with good reason, that continued high prices could very quickly render oil obsolete for most applications.

MSD · 09-11-2008, 02:44 PM

I see it as more of a "hey, if you don't want the money, we do" move.

stevie667 · 09-11-2008, 03:31 PM

Lots of politics going on behind the scenes it seems.

Still, oil prices are dropping, which is what the world economy needs right now.

roachboy · 09-11-2008, 03:41 PM

the death of opec?
over a disagreement about production levels?

uh..no.

you're relying on a faulty information taken from a blog.
here's a better informed take:

Quote:

Energy September 11, 2008, 1:31PM EST text size: TT
How Real Is OPEC's Production Cut?
OPEC says it will take 520,000 barrels off the market, but details are unclear. The move hasn't impacted oil's recent price slide

by Stanley Reed

OPEC's production-cut announcement in the wee hours of Sept. 10 took nearly all the weary reporters and analysts assembled in OPEC's packed Vienna headquarters by surprise. Saudi Arabian officials, who usually call the shots at OPEC, were telling their contacts before the meeting that they were happy with the current state of the market and not terribly worried by the 30% fall in prices since mid-July. In fact, Ali Naimi, Saudi Arabia's dapper oil minister, said more than once with satisfaction that the desert kingdom had worked very hard to bring prices back down to earth from near-$150-per-barrel levels.

So why a cut? The answer is that in the strange world of OPEC, where words have special meaning, this cut may not be a cut at all. For the sake of unity in the organization, the Saudis appear to have yielded to pressure from hard-liners such as Algeria, Iran, Libya, and Venezuela to put what at least seemed like a cut into OPEC's post-meeting communiqué.

Saudi Arabia: Acting On Its Own?

But no specific numbers were spelled out. Instead, a complex formula was devised that isn't easy to interpret. OPEC members will now comply with September 2007 production quotas adjusted to include new members Angola and Ecuador and excluding Indonesia and Iraq. Chekib Khelil, OPEC's hard-line president and the energy minister of Algeria, told the post-meeting press conference that the new regime would mean taking 520,000 barrels of oil per day off the market, but just where these barrels would come from was far from clear. While prices rose after the meeting, they have been weakening since, contributing to the perception "that this cut will have no material effect," writes Edward Morse, energy economist at Lehman Brothers (LEH).

The hard-liners would like the Saudis to trim back the 500,000 barrels or so per day they have added unilaterally in recent months. But after the meeting the Saudis continued to repeat their mantra that they would supply all the oil their customers asked for. The bottom line appears to be that the Saudis will let their own production rise and fall with the demands of the market rather than fall in line with OPEC hard-liners, who want to put a floor of around $100 per barrel under prices. If demand falls later this year and in 2009, as is quite probable, so be it.

At a briefing in London on Sept. 11, Christophe de Margerie, the CEO of the French oil giant Total (TOTF.PA), chastised reporters for not taking earlier Saudi efforts to cool down prices seriously. Alarmed by surging prices, the Saudis called an emergency summit in their second city of Jeddah in June and promised to produce whatever oil the market needed. De Margerie stressed that this was Saudi Arabia acting without OPEC. Indeed, Khelil, the OPEC president, called a press conference in his hotel room at the conference and expressed his strong disagreement with the Saudi output increase. There's always some doubt about OPEC, de Margerie said. "Are they going to deliver? But this was not OPEC, it was Saudi Arabia." He pointed out that no less a personage than Saudi Arabia's King Abdullah had lent his weight to the message by presiding over the conference. This "was a coup de knife in the system of OPEC," de Margerie said. Since the Saudi conference in June, the 500,000 barrels per day in additional Saudi supplies, a strengthening dollar, and weakening demand all had a negative impact on prices.

Bearish Forecasts

Now comes the ambiguous outcome of the latest OPEC meeting. Closely analyzed, the OPEC communiqué was quite bearish for prices. It talked about "a weakening world economy" and "concomitant lower oil demand growth." The Saudis already may be trimming back production in line with reduced customer requests. The International Energy Agency, the Paris-based watchdog, reported Saudi production at 9.46 million barrels per day for August compared with the longtime high of 9.7 million or so that the Saudis say they produced in July.

There seems to be a good chance that prices will continue to fall. On Sept. 10, analysts at Barclays Capital (BARC.L), longtime bulls on oil prices, slashed their forecast for the average price for the 2008 fourth quarter, from $123.90 per barrel to $97.50. Barclays pronounced "just as in late 2006 and early 2007, the stabilization and recovery of prices will be a long process."

How Real Is OPEC's Production Cut?

o yeah---opec has a website:

http://www.opec.org/home/

which probably would have announced the organization's demise.

and the international energy agency (an "intergovernmental agency created by the oecd to monitor energy issues) is a good source of market information, though at a 2 week or so delay for those of us peons who don't want to shell out the extortionate subscription prices:

http://www.iea.org/

jorgelito · 09-11-2008, 04:01 PM

Ironically enough, Russia may hold the trump card to OPEC. As they are not a member and are a significant producer, Russia can reduce the effects of OPEC to a degree.

new man · 09-11-2008, 04:02 PM

never mind, will follow up later.

09-11-2008, 12:15 PM	#1 (permalink)
new man Banned	The Death of OPEC? The death of OPEC Posted Sep 11 2008, 07:01 AM by Douglas McIntyre Rating: Saudi Arabia walked out on OPEC yesterday, saying 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. “Saudi Arabia will meet the market’s demand,” a senior OPEC delegate told the New York Times. “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 was due to "oversupply", 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. The breadth of that deposit has now expanded. OPEC needs the 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 about any possibility of dissolving, but the process is already over. Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St. To me, this is huge and very interesting. From my limited understanding, Saudi Arabia has always been the linchpin that has held OPEC together. With a weakened cartel, oil prices may be more market dependent. This by no means dictates that we should abandon alternative energy policies, but it may give the world a little respite from this crazy market. Assuming Saudi Arabia actually sticks to this.

09-11-2008, 12:56 PM	#2 (permalink)
inBOIL I have eaten the slaw	I have to assume the Saudis will stick to this plan of action. The fist oil embargo worked because there were no viable alternatives to petroleum. Now, with all the alternative energy sources that are slightly less economical than oil, any price spike has the potential to spark a refinement of these technologies that could make them permanent competitors in the energy market. Saudi Ariabia is afraid, and with good reason, that continued high prices could very quickly render oil obsolete for most applications. __________________ And you believe Bush and the liberals and divorced parents and gays and blacks and the Christian right and fossil fuels and Xbox are all to blame, meanwhile you yourselves create an ad where your kid hits you in the head with a baseball and you don't understand the message that the problem is you.

09-11-2008, 03:31 PM	#4 (permalink)
stevie667 Too Awesome for Aardvarks Location: Angloland	Lots of politics going on behind the scenes it seems. Still, oil prices are dropping, which is what the world economy needs right now. __________________ Office hours have changed. Please call during office hours for more information.

09-11-2008, 04:01 PM	#6 (permalink)
jorgelito All important elusive independent swing voter... Location: People's Republic of KKKalifornia	Ironically enough, Russia may hold the trump card to OPEC. As they are not a member and are a significant producer, Russia can reduce the effects of OPEC to a degree. __________________ "The race is not always to the swift, nor battle to the strong, but to the one that endures to the end." "Demand more from yourself, more than anyone else could ever ask!" - My recruiter

09-11-2008, 04:02 PM	#7 (permalink)
new man Banned	never mind, will follow up later. Last edited by new man; 09-11-2008 at 04:05 PM..

09-11-2008, 02:44 PM	#3 (permalink)
MSD The sky calls to us ... Super Moderator Location: CT	I see it as more of a "hey, if you don't want the money, we do" move.