OPEC

[Wästed The Great]

I found this article the other day, and found it interesting in itself, and also interesting that it was so quietly reported.
Maybe I am misunderstanding this, but it seems to me that the Saudi's are saying 'fuck off' to the rest of OPEC, and are going to pump as much oil as the market wants.  Any comments on what this means?


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

 

[LooseCannon]

It comes to this: what is the purpose of OPEC?  It's a cartel designed to regulate oil.  However, the price of oil is very high and Saudi Arabia today is more politically dependent on the USA than ever.  So, it has become expeditious to ignore the will of OPEC for the will of the USA.  Is this the end of OPEC?  Probably not.  They'll continue to exist and in the future may return to the power they once held.  But today?  Russia acts alone, Saudi Arabia acts alone, and Iraq is under US control.  Those are three of the biggest oil exporters, and it has neutered OPEC.  For now.

 

[Onhell]

Russia is not a member of OPEC so who cares if they act alone? OPEC is only made up of 13 countries, many more countries than that export oil, Mexico, the U.S's biggest supplier after the Saudis isn't part of OPEC... So Chavez can yell and scream all he wants, he's a fucking brat.

 

[LooseCannon]

My point is that OPEC's directive to control the majority of global oil production has slipped with the introduction of Russia as a big-name player and the apparent defection of Saudi Arabia.

 

[Wästed The Great]

That's how I would see it.  Prior to Russia's strength as an oil supplier and Saudi leaving, OPEC could virtually control the price of oil.  For now, they don't have that power, apparantly.

What I wonder, is with this loss of 'price structure', will the market become more volaitle?  With everyone acting independently, will we see more fluctuation in price and supply?  Or will the Saudi's desire to 'meet demand' end up reducing the price overall?

 

[Perun]

Sounds like Saudi Arabia got tired of all that bullshitting by Iran and Venezuela. I would greatly approve of that if Saudi Arabia wouldn't be a major bullshitter in its own right.
I could imagine a "counter-OPEC" formed by Saudi Arabia and Russia. To use a particularly cynical term, that could become interesting.

 

[Wästed The Great]

I see what you are saying, but, due to LC's statement about Saudi Arabia being dependent (politically) on the US, I think these two wouldn't mix well, politically. 

Not to say it wouldn't happen, but I see conflicts.

 

[Onhell]

  Or will the Saudi's desire to 'meet demand' end up reducing the price overall?

That's what I was wondering myself. Opec not only controls the price, but how much is produced and shipped. The rise in prices is not only due to the war, but production is being bottle-necked somewhere and I want to say it is part to the fear of "running out of it", pressure from "Green" oranizations and also because they feel like it and want to be filthy rich.

 

[Perun]

I see what you are saying, but, due to LC's statement about Saudi Arabia being dependent (politically) on the US, I think these two wouldn't mix well, politically. 

I'm not really sure if the US aren't more dependent on Mr Ibn Saud. My theory is that America is pumping way more money into the country than it's really worth, because Saudi Arabia is that sort of trouble maker you really don't need. Plus, they are one of the few really powerful allies in that region. But if Ibn Saud would suddenly decide to end this cooperation and side with Russia, there's hardly anything Washington could do- and it would probably mean even more money (remember, Russians are known to be more lavish than Americans) plus some credibility regained in the Arab world.
But I didn't really think that thought over last night. It seems to be more likely that Saudi Arabia is doing this to please the US. I just thought it would be an interesting scenario.

 

[Wästed The Great]

Sure, I understand that.  And you are correct, it would be an interesting situation.  Maybe not so good, for the US financially, but a change.

 

[LooseCannon]

But I didn't really think that thought over last night. It seems to be more likely that Saudi Arabia is doing this to please the US. I just thought it would be an interesting scenario.

I think the big reason that the Saudis are preferring the USA to Russia is that the USA has proven that it can have extreme regime change without truly slackening its lust for oil.  Russia, as a country, would not provide an alternative to the USA but instead an alternative to OPEC.  So while Mr. Putin (I mean Mr. Medvedev, really, he's in charge!) may prefer to set up an OPEC-style counter cartel, but when he is done, there is no guarantee that will continue.  Plus, in the US-Saudi relationship, the Saudis (as Perun have pointed out) are in charge.  They are the ones exporting oil to the US.