OPEC (the Organization of Petroleum Exporting Countries supplying over 40 percent of the world's oil consumption) feels put upon. It's Secretary General lashed out at the International Energy Agency for having categorized current oil prices as "alarming", calling for OPEC to show more flexibility in boosting supplies. OPEC's Secretary General Abdalla Salem El-Badri immediately countered that "At the moment there is more than enough oil on the market... Oil prices have been driven by technical means... the weak dollar and speculation" all the while critical of the IEA for warning of the risks to economic growth due to rising oil prices.
It is significant that El-Badri's comments come while OPEC's official output quota has remained unchanged since instituting a record cut in its production in December 2008. December 2008 was a fateful moment for OPEC and the price of oil. At the time oil was hovering around $40/barrel and OPEC and its minions in the oil universe were rattled, to say the least. Even the Saudi monarch, King Abdullah got into the maelstrom by promulgating that he considered $75 a barrel to be a "fair price."
But with the price at $40/bbl we were summoned to a far higher calling. You see, according to that font of wisdom on all matters oil, Saudi Oil Minister Ali al-Naimi instructed, "You must understand that the purpose of the $75 price is a much more noble cause. You need every producer to produce, and marginal producers cannot produce at $40 a barrel."
That was then, and the price was $40/bbl. This is now with West Texas Crude selling for over $90/bbl and London Brent crude selling just under $100/bbl at $98/bbl. More than a doubling of price since December 2008, shooting past Al Naimi's "noble" and King Abdullah's "fair" price of $75/bbl months ago.
The IEA opined in a report last Tuesday that OPEC would need to pump 400,000 barrels per day more than expected this year to balance the market. El Badri said OPEC would respond if there is a need for more supply. "OPEC", he reiterated "as always, is watching the market carefully. We remain committed to market stability."
Translation. OPEC is prepared to do little or nothing to help reduce the current level of prices. Their lack of willingness to hold the price at moderate levels gives the speculators a one way bet on ever higher prices.
What if El Badri had said in response to the IEA, "Yes we agree with you, current prices are alarming and a risk to the world's economy. Especially at levels so significantly higher than the $75/bbl we consider to be "fair". We will do what we can to rectify the situation. As you are aware Saudi Oil Minister al Naimi has at his disposal some 4.5 million barrels per day (bpd) pumping capability which are being held idle and on standby. Certainly he and all of us at OPEC will do our utmost to bring about a price which we consider as "fair" and tolerable to the world's economy."
Don't hold your breath, but were it to come to pass it would send the speculators running for the hills and evolve an entirely new relationship between oil suppliers and consumers around the world, one of mutual respect and true interdependence.
One last observation. We in the United States are by far the largest consumers of oil in the world. Yet we have done little or nothing to significantly reduce our oil consumption and to politically confront an intransigent OPEC with the authority and interplay that an industry's largest consumer normally has on the sway of a given industry's outlook and policies. We have been silent and have permitted our Department of Energy to remain mute while prices have escalated by well over 200% or $1 billion rent a day on the nation's economy ($90/bbl plus today -- $40/bbl December 2008 = $50/bbl x 20,000,000 bpd US consumption= $1 Billion/day). Or more to the point, gasoline at well over $3.00 a gallon.
We have permitted our oversight agencies such as the CFTC to stall and equivocate rather than bring massive and destructive speculation to heel. The lack of meaningful oversight and action by our government agencies is exemplified by a Department of the Interior and its Minerals Management Service whose ineptitude has already bequeathed to us the massive Deepwater Horizon oil spill disaster.
Where is our national policy on this issue? We not only owe it to ourselves but to oil consumers throughout the world who are paying a heavy price in part because of our lack of meaningful leadership.