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Location: Essexville, MI./Saginaw Bay. | The Death Of OPEC
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.
Douglas A. McIntyre
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Location: Menasha, WI | Forbes has a much different take: LONDON - It will take several weeks before the number crunchers close to the ground determine just how effective OPEC's plea to end excess production will be. But already it seems unlikely that Saudi Arabia, the oil-exporting cartel's biggest producer, would choose to brazenly flout the guidelines and risk an open rift with the group.
Saudi Arabia is currently the biggest culprit of overproduction, having unilaterally uncorked around 500,000 barrels of oil a day above its quota this year. (See "OPEC's Kingdom Built On Sand.") Although it is certainly a dove when it comes to throwing lifelines to the energy markets, oil is now in a bear trajectory, and that means the kingdom's desire to break from the pack is unlikely to be strong.
"Undermining OPEC is not in Saudi Arabia's interests," said Samuel Ciszuk, analyst with Global Insight. He said that the only time the kingdom had obviously flouted the cartel was in the late 1980s, when it responded to its fellow members' overproduction by turning on its own taps at full pelt; the result was oil crashing to $15 a barrel.
In other words, Saudi Arabia is far from a rogue member of OPEC. One Kuwaiti analyst, Kamel al-Harami, told Agence France-Presse that the cartel would do little until December, when it would make a "final" decision on cuts. http://www.forbes.com/markets/2008/09/11/oil-saudi-opec-markets-commodities-cx_ll_0911markets20.html |
The Death of OPEC?