Friday, September 26, 2008

Good News: OPEC Stumbles, Chavez bungles

Dateline Sept 10th 2008

At OPEC's spiffy headquarters in Vienna, Austria, Saudi representatives got up and walked out. They said they would not honor the cartels proposed production cuts. They were also quite tired of Hugo Chavez's ranting and raving about the U.S.

Even as prices have fallen due to so-called over supply the Saudis do not believe cutting production is in order with cold weather just around the corner. Demand will rise. “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."

With Russia, Iran and Venezuela wanting to punish the U.S. and the European Union the Saudis seem to recognize a losing strategy when they see it. Brazil has also recently confirmed another huge oil deposit to add to one it discovered off-shore earlier this year. The first one discovered by Petrobras has the promise of being one of the largest in the world. In the competitive world of big oil driving prices up will only make it easier for Brazil to bring this new crude into the global supply.

The same is true for the possibility of major finds off America's OCS in the next few years. Congressional Democrats have lost their game of chicken with the Republicans in front of this fall's elections. The Democrats will let congressional ban on offshore drilling expire on Oct 1st. With President Bush having lifted the executive ban earlier this year the door is open for more domestic production. Regardless if American oil simply enters the global supply it is still a good thing.

So is it over for OPEC? Well, it is the Saudis who essentially set the terms of pricing and supply. It is the Saudis who control OPEC's bully pulpit. They need the Saudis to have any credibility. Frankly, without the blessing of its most powerful member OPEC forfeits its leverage.

There has been no announcement about any possibility of OPEC dissolving, but for all intents and purposes the process has already begun. (OK, this is some wishful thinking, but it couldn't happen to nicer bunch of guys!)