At OPEC Meeting, Saudi Arabia Stares Down Texas and North Dakota
On Thanksgiving Day, what used to be the world’s most powerful oil cartel will gather in Vienna to decide how much oil to produce. Right around the time that the Bears and Lions are getting underway at in Detroit, delegates of the 12-member Organization of Petroleum Exporting Countries will finish a closed-door meeting and announce to the world how much oil they intend to collectively pump over the next year.
In another setting, a group of people who sell the same product getting together to talk about ways to manipulate prices would be seen as blatant collusion. But this is OPEC—that’s basically the whole point. The founding premise back in 1960 was to wrest control of oil production—and the ability to set prices—from the handful of large Western oil companies that had taken over much of the Mideast after World War II.
By 1973, OPEC controlled roughly 53 percent of the world’s total oil production. That’s why its embargo was so effective in driving up oil prices about 400 percent within a year. Today, however, OPEC’s share of total world production is down to 42 percent, according to data from the Energy Information Agency. This comes as OPEC pumps near-record amounts. For the first time in a long time, the ability to determine the price of oil no longer clearly resides with OPEC. Instead, it’s increasingly U.S. producers at the controls.
This shift has big geopolitical implications, affecting everything from Iran’s nuclear program to the fight against ISIS. And it helps explain why most OPEC members come to the meeting having spent the past few weeks talking about the need for cuts. Venezuela and Ecuador want to “protect prices.” Libya’s wants a cut of 500,000 barrels a day. Iran may propose an overall cut of up to 1 million barrels a day, although “under no circumstance” is it willing to cut itself. Sanctions have taken more than a million barrels of Iran’s production offline since 2012. Its oil minister has vowed that Iran will not cut its production “even by one barrel.”
Russia won’t be in the room. But as the world’s top oil producer, it wants cuts, too. Over the weekend, Russia and Saudi Arabia agreed to cooperate on oil prices. And Russia is reportedly considering joining OPEC in production cuts next year—that is, if the cuts happen at all.
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http://www.businessweek.com/articles/2014-11-25/opec-meeting-saudis-stare-down-oil-producers-in-texas-north-dakota#r=rss