NationStates Jolt Archive

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 U.S. and European Union 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.
http://blogs.moneycentral.msn.com/topstocks/archive/2008/09/11/the-death-of-opec.aspx

What do you guys think? Will this change the face of global oil-politics and the oil market?

The result will be that instead of one OPEC, you'll have to negotiate with multiple bodies. And that's it.

http://blogs.moneycentral.msn.com/topstocks/archive/2008/09/11/the-death-of-opec.aspx

What do you guys think? Will this change the face of global oil-politics and the oil market?
I don't think this is anything new. Google OPEC and check back some years. I suspect you'll see that the Saudis have refused to go along more than once.

:confused:
Death of OPEC???
:confused:
AHA AHAHAHAHAHAHAHAHAHAHAHAA!!!! *wipes tears from eyes*
...Seriously?...NOT gonna happen! 'Twould be absolutely, orgasmically, DREAMY!!!...but; not gonna happen. :(

I DO applaud the Saudis for showing some common sense, and, incidentally; a little compassion and decency in their decision.

Thank You, Saudi Arabia.

Opec shot it's self in the foot in the 70's. Further moves by the west to save Kuwait and Saudi Arabia in '91 weakened the bad attitudes further. So this has been in the making for a long time. Also the Saudi's don't like the potential political hijacking from the Persians and especially the whack job from Venezuela.

The result will be that instead of one OPEC, you'll have to negotiate with multiple bodies. And that's it.
Isn't that a rather large deal, given that the reason that OPEC was so powerful was exactly because it was SINGLE body that could set the price of oil and control distribution and supply? The fact that you can negotiate with multiple bodies totally revolutionizes that idea....

The result will be that instead of one OPEC, you'll have to negotiate with multiple bodies. And that's it.

Yeah...that's called a FREE MARKET, vs. a trust/monopoly.
also known as a more desirable result, if you are the consumer, and not the producer. :wink:

The result will be that instead of one OPEC, you'll have to negotiate with multiple bodies. And that's it.

Yeah...that's called a FREE MARKET, vs. a trust/monopoly.
also known as a more desirable result, if you are the consumer, and not the producer. :wink:

aka... Competition is a good thing.

aka... Competition is a good thing.

Thank You. :hail:

Good ridence. In the short term, this is probably a good thing, but I am worried about long-term effects.

Their will likely be a drop in oil prices, which might allow a lot of people to fool themselves into thinking their is no urgency in replacing oil. That could be disastrous in the long run.

They all fucking cheat on their quota anyway. OPEC is only the big deal if you read the NYT.

They all fucking cheat on their quota anyway. OPEC is only the big deal if you read the NYT.

Oops... truth has reared it's ugly head! :tongue:

Unfortunately, it STILL affects prices at the pump.

? The fact that you can negotiate with multiple bodies totally revolutionizes that idea....
Only if the Saudi don't know what's best for them.

This is the same thing the Saudis did in the 1980's and 1990's, a move which produced the two oil gluts that pushed oil prices to some of their lowest levels in history. Just like back then, they realized that those quotas were a joke and used their power (a power which is in fact increasing due to the continued decline in oil production in many OPEC members) to achieve an oil market in line with their interests.

Truth is, compared to other oil producing nations, the Saudis have much lower production costs and considerably larger proven and unproven reserves; as a result, they have an incentive to push oil prices far lower than their competitors, undercutting their market share and boosting their own. Realistically, it's no different from any company with a cost advantage over their competitors; they can afford much lower prices for their product because their margin is so high to begin with.

Plus, I think they're just shrewd businessmen that see through the stupidity of Venezuelan and Iranian sabre-rattling; they know attempting to use oil to force and ideology is a pointless dead end that will only result in their own destruction and that the only thing that matters is the continued consumption of oil by anyone willing to buy it. The fact is, $100 oil is still far too high to slow the development of alternative energy or to stop the ongoing decrease in oil consumption in the developed world; oil prices need to easily fall another 50% to really reverse the demand destruction of the past couple of years and probably fall to as low as $25 (or lower) to trigger a major slowdown in alternative energy development.

The truth is, OPEC isn't a very strong organization and many of its members have their own agendas. If you recall, it has only been acting as a united entity since 1999 following 20+ years of incessant infighting and price wars between its members. This is a return to that status quo, with corresponding ramifications in the oil markets.

Only if the Saudi don't know what's best for them.
I think Vetalia said it above way better than i could have.....

You'll see. The price will drop, but not by much. None of them really wants to drop it.

You'll see. The price will drop, but not by much. None of them really wants to drop it.

I believe the Saudis would like $50/barrel, if not lower. They know that will put such a squeeze on their competitors that it'll give them a huge boost in market share and demand for their oil.

It amusses me that even the Saudis are sick of Chavez.

Plus, I think they're just shrewd businessmen that see through the stupidity of Venezuelan and Iranian sabre-rattling; they know attempting to use oil to force and ideology is a pointless dead end that will only result in their own destruction and that the only thing that matters is the continued consumption of oil by anyone willing to buy it. The fact is, $100 oil is still far too high to slow the development of alternative energy or to stop the ongoing decrease in oil consumption in the developed world; oil prices need to easily fall another 50% to really reverse the demand destruction of the past couple of years and probably fall to as low as $25 (or lower) to trigger a major slowdown in alternative energy development.


Now this is true. The Saudis know exactly which side their bread is buttered, and probably find Chavez more annoying than we do.

Also, I agree with what you have said in respect of alternative energy pricing.

My one caveat is that I don't think you are going to see $25 dollar oil. Too much middle class has been created since the last time it was that low, so there is a sort of nominal standard of living floor in a much greater part of the world.

It amusses me that even the Saudis are sick of Chavez.

+

And Iran.

Now this is true. The Saudis know exactly which side their bread is buttered, and probably find Chavez more annoying than we do.

Also, I agree with what you have said in respect of alternative energy pricing.

My one caveat is that I don't think you are going to see $25 dollar oil. Too much middle class has been created since the last time it was that low, so there is a sort of nominal standard of living floor in a much greater part of the world.

I don't think we'll see it either, barring a major increase in oil production or another major drop in demand like the 15% back in the early 1980's. I'm skeptical of the former, although there is a bulge of supply in the pipeline resulting from the simultaneous completion of projects in 2009-2010; from that point forward, I feel the bulk of new production will likely be unconventional or produced via enhanced recovery, which means a higher price floor to make the projects economical. Nonetheless, this is likely the lowest theoretical price the Saudis would be willing to accept; their number one goal is a stable market, since their projects have long lead times and tend to be far bigger than comparable ones in other countries making long-term stability more important for them than anybody.

Of course, the last time oil prices collapsed in 1998 it motivated the reorganization of OPEC (spearheaded by Hugo Chavez, no less) that has enabled them to have such an influential role in the oil markets. If it happens again, that will happen again.

I believe the Saudis would like $50/barrel, if not lower. They know that will put such a squeeze on their competitors that it'll give them a huge boost in market share and demand for their oil.
It does make sense.

If you can afford to absorb the decrease in profit (because you're profits are already so high) force your competitors out of business who can't withstand the decrease in profits until you are the sole survivor and can dominate the market and increase your market share by replacing your old rivals....

It may be that The Soviet Union could arise again. A KGB Phoenix presiding over a Capitalist dictatorship with client states in the Third World.
But this time it's our side that's stuck in Afghanistan.

As for the Saudis, they had better use all that desert sand to make silicon chips if they want to harness the energy resources of the 21st century.
Joke:
Why do the Irish have potatoes and the Arabs have Oil?
Answer: Because the Irish had first choice.

+

And Iran.

That doesnt amusse me as much, because I am of the firm belief that while Ahmadinejad is still a theocrat, hes much more sane then the media portrays him and is more grounded in reality then other Muslim extremists in the Middle East. Ergo, Iran doesnt annoy me NEARLY a much as Chavez does. And I am not living in fear of Iran*.


*- Not that I fear Chavez or his country either. But a lot of Americans seem to think Ahmadinejad is hiding under their bed, so I felt that I should mention I do not share this particular fear.

It may be that The Soviet Union could arise again. A KGB Phoenix presiding over a Capitalist dictatorship with client states in the Third World.

Putin has no desire for a new Soviet Union. At most, he wants a new Russian Empire, with himself as Tzar Vladmir Putin I.

It may be that The Soviet Union could arise again. A KGB Phoenix presiding over a Capitalist dictatorship with client states in the Third World.
But this time it's our side that's stuck in Afghanistan.

As for the Saudis, they had better use all that desert sand to make silicon chips if they want to harness the energy resources of the 21st century.
Joke:
Why do the Irish have potatoes and the Arabs have Oil?
Answer: Because the Irish had first choice.

So the Irish are dumber than most animals?

I suppose I should contribute some real thoughts though.

I think in part, the Saudis must realize that with falling demand for oil and rising prices, more people will be looking for alternatives to oil. And if states eventually accomplish true energy security, it will be a huge loss for all oil producing nations. I would think that the Saudis would prefer ridiculous profits for a longer period than very ridiculous profits for a shorter one (the longer the world uses oil, the better for them). Decreasing supply and keeping up costs can only hurt demand, and at some point will eventually cut into their profits (if its not happening already).

On the other hand, this doesn't exactly kill OPEC. I mean sure, it's symbolic that one of the world's major oil producers refuses to comply, but in the end, they still as a group have a lot of power, unless others decide to follow in the Saudi's tracks. So ultimately we will probably see lower prices, but OPEC isn't quite dead yet.

It amusses me that even the Saudis are sick of Chavez.

He's an asshole. Even if he's right about the United States and the Bush Administration, he's still an asshole. :p

http://blogs.moneycentral.msn.com/topstocks/archive/2008/09/11/the-death-of-opec.aspx

What do you guys think? Will this change the face of global oil-politics and the oil market?

Had Saudi's really quit OPEC it would have been much bigger news than a sinlge blog entry...

Also, isn't OPEC free market at it's finest - joint venture nearing monopoly in order to maximize profits?


Here's another newer blog on the matter:
http://www.guardian.co.uk/business/2008/sep/14/oil.mergersandacquisitions

As if the prospect of a global recession isn't enough, consider the latest threat to world economic stability: an alliance between Russia and Opec, the oil-producing cartel dominated by Saudi Arabia.

That's a scary possibility, as Russia supplies one third of Europe's energy needs, while Opec accounts for nearly 40 per cent of global oil production. Together they produce half the world's oil, so any pact that paves the way for Russia to become a full member of the cartel would present a threat to countries such as Britain, which is becoming increasingly dependent on foreign imports as supplies of North Sea oil dry up.


So, not only are the Saudis still in, Russia might be wanting to join the party...

So, not only are the Saudis still in, Russia might be wanting to join the party...

It's possible Saudi Arabia and Russia might be interested in working together in their own strategic venture as a way of both weakening OPEC's lesser producers and ensuring greater stability in the oil market; much like SA, Russia's projects tend to be very big and have long lead times, which means their investment timeframe has to be a lot longer and a lot more stable to justify major new projects. As a result, both of them have far better reasons to work together outside of OPEC than inside it, particularly since both nations would stand to gain from coordinating their natural gas production (something at present lacking) whereas neither really gains from OPEC's oil production decisions. I think they both also want to get away from some of the more loose cannon members of OPEC to stabilize the oil and gas markets; it's not unlikely that a few others like Kuwait and the UAE might be interested in such a move, especially to capitalize on their own significant gas reserves.

Frankly, I don't think either of them likes OPEC; instead, they likely see it as a necessary evil that should be kept under the tight control of its dominant producer. A Saudi-Russian venture would effectively ensure a tight leash on the organization in both oil and gas, broadening the cartel's influence to better deal with the energy situation in this century. Oil is becoming increasingly marginalized in the world energy mix, so I think diversification in to gas is a safe play meant to ensure their continued dominance even if oil supplies peak and begin to decline.

Ultimately, this may be the beginning of the structural shift from oil to natural gas, a move which will mark probably the first major structural shift in the energy industry since the displacement of coal by oil in the 1920-1950 timeframe.

So the Irish are dumber than most animals?

Not at all, Zayun 2. It was a joke. Ireland has one of the highest levels of education in Europe.

As far as OPEC goes, I was using a joke to make a point about the value of oil as a commodity. It gives the countries that have this finite resource enormous power (and vulnerabilty) at this point in history.

2 pages and no-one's mentioned the probability of Western powers pressuring/bribing/etc Saudi Arabia to do this?

I believe the Saudis would like $50/barrel, if not lower. They know that will put such a squeeze on their competitors that it'll give them a huge boost in market share and demand for their oil.
The demand for oil tends to exceed production anyway. It's a seller's market already.


It does make sense.
If you can afford to absorb the decrease in profit (because you're profits are already so high) force your competitors out of business who can't withstand the decrease in profits until you are the sole survivor and can dominate the market and increase your market share by replacing your old rivals....
Oil used to mean "BIG PROFIT" when it was $20/barrel. The extraction cost for OPEC is less than $10/barrel.

Saudi can sell oil for $15/barrel, and they won't drive any OPEC countries out of business. Only Norway, Russia, and other far-Northern oil producers.
Drilling for oil is not rocket science. All they can hope to do with price drop to $20/barrel is to collapse the non-oil sectors of OPEC economies. Their oil sectors can only be driven out of business by selling oil for like $10/barrel.

Out of interest, why the American/European/Other options on the poll?

2 pages and no-one's mentioned the probability of Western powers pressuring/bribing/etc Saudi Arabia to do this?

Given that the US has already made a scene by basically getting down on our knees and begging them to produce more oil, I doubt there's much we could do or say that would make them act on any interests but their own. By and large, they haven't needed us for much since 1991 and it's not likely to happen again unless Iran starts really acting up.

The demand for oil tends to exceed production anyway. It's a seller's market already.

Not really; until 1999, there was a major overhang in the oil markets stemming from demand destruction from the 1970's onward. By and large, it was a true buyer's market for those two decades.

Not at all, Zayun 2. It was a joke. Ireland has one of the highest levels of education in Europe.

As far as OPEC goes, I was using a joke to make a point about the value of oil as a commodity. It gives the countries that have this finite resource enormous power (and vulnerabilty) at this point in history.

Well so was what I said. Oil, if used appropriately, can get you a lot of potatoes, forever. It's much better than potatoes, you just have to know what to do with it.

Trading Sunday the 14th oil dipped to $99 a barrel.

Trading Sunday the 14th oil dipped to $99 a barrel.
Hmm...did that make news? I didn't see anything about that...and I would have expected to given that oil dipped below $99....

Hmm...did that make news? I didn't see anything about that...and I would have expected to given that oil dipped below $99....

Right now, it's down $6 to $95.10. Spectacularly bad economic data will do that...

This is the same thing the Saudis did in the 1980's and 1990's, a move which produced the two oil gluts that pushed oil prices to some of their lowest levels in history. Just like back then, they realized that those quotas were a joke and used their power (a power which is in fact increasing due to the continued decline in oil production in many OPEC members) to achieve an oil market in line with their interests.

Truth is, compared to other oil producing nations, the Saudis have much lower production costs and considerably larger proven and unproven reserves; as a result, they have an incentive to push oil prices far lower than their competitors, undercutting their market share and boosting their own. Realistically, it's no different from any company with a cost advantage over their competitors; they can afford much lower prices for their product because their margin is so high to begin with.

Plus, I think they're just shrewd businessmen that see through the stupidity of Venezuelan and Iranian sabre-rattling; they know attempting to use oil to force and ideology is a pointless dead end that will only result in their own destruction and that the only thing that matters is the continued consumption of oil by anyone willing to buy it. The fact is, $100 oil is still far too high to slow the development of alternative energy or to stop the ongoing decrease in oil consumption in the developed world; oil prices need to easily fall another 50% to really reverse the demand destruction of the past couple of years and probably fall to as low as $25 (or lower) to trigger a major slowdown in alternative energy development.

The truth is, OPEC isn't a very strong organization and many of its members have their own agendas. If you recall, it has only been acting as a united entity since 1999 following 20+ years of incessant infighting and price wars between its members. This is a return to that status quo, with corresponding ramifications in the oil markets.

We have a winner.

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.

In my opinion, this is bigger news.

Considering that Brazil's domestic energy needs are largely satisfied by ethanol, nuclear, and hydro power, these oil discoveries will turn Brazil into a major petroleum exporter in the next couple of decades.

The US ought to be doing all it can to foster closer ties with Brazil. The Brazilians would increase their nations wealth significantly by focusing their exports on the US market, and the US could eliminate imports from unstable Middle Eastern nations...win/win.

The Saudi Arabian envoy walked out of a meeting. This is a world away from Saudi Arabia withdrawing from OPEC. The other nations would cave in to Saudi demands long before that happens, as it would drastically undermine their positions.