OPEC Meets Pumping Billows of Hot Air While Curtailing Production of Oil

There they are again. The good nabobs of OPEC are going to Vienna to munch their strudel while exuding billows of lamentations about the urgency to push prices to the $75-80/bbl level before they can order a second course. As is his wont, the OPEC pop star, forever holding center stage, is Saudi Oil Minister Ali al Naimi who was last seen jogging through Vienna and telling anyone who would listen that "Demand reflects the price", after having been quoted a month before that helping to keep prices at $50 a barrel was his country's contribution to the world economy (concurrent to keeping some 4.5 million barrels a day of Saudi oil capacity shut in). Bouquets of gratitude should be visited on him at the endpoint of his jog, especially when we are reminded that CBS's 60 Minutes reported, after interviewing Mr. al Naimi, that Saudi costs for producing one barrel of oil in the kingdom is less than $2/bbl. Mr. Al Naimi, it's OK if you send us less oil, but please, please send us your marketing team, especially to Detroit, General Motors and Chrysler. With margins at even half of what you have been "sacrificing," all this nonsense about bankruptcy and liquidation would be put to rest, one, two, three!

With demand contracting this year according to The International Energy Agency (IEA) by some 2.6 million barrels, the steepest fall since 1981, with oil inventories at the highest level ever, Mr. Al Naimi must have had a difficult obstacle to overcome in that he fleetingly, most likely in sotto voce, uttered something that truly made sense, conceding that increases in oil prices were "not purely fundamental" suggesting speculative money was also a factor driving prices ("Saudi's Back Increase To At Least $75"). Of course using the word "manipulation", as in sovereign wealth funds possibly gaming the oil price on the commodity exchanges with their billions, was left unsaid.

Nor did Mr. Al Naimi, nor any of his brothers-in-arms at the Vienna beer fest focus on a little tidbit brought up by the IEA. That there are presently 65 supertankers, each the size of New York's Chrysler Building, holding some 130 million barrels of oil (and probably not included in the statistical inventory reports) stored offshore waiting for buyers. Such is the world where, zombie like, our press, our government agencies, our financial sector accept the current $62/bbl price as a consequence of unfettered market forces.

So please dream on. Vienna calling. Herr Doktor Sigmund Freud, where are you when we need you so badly now!

Comments

[cam]

Learsy seems to want Saudi Arabia to give its oil away. It seems the only reason the Saudis would charge less for their oil than the market will bear is for fear their price might accelerate the change
to alternative fuel.

It is time to Gas was taxed to reflect its real cost. 60% of the price at the pump should be taxes. They would reduce consumption and fund development of alternatives. That way we get most of the money we spend on transport back into our own economy.

[Thucydides Jr.]

I wish we were not rependend on oil, but once it hit $3 a gallon, I lose $1k/mo in revenue for every 25 cent jump after that. I run a small used and rare bookshop, and in 2006 and 2008 I saw this pattern each time.

Sure, it'd be great to put a $2 tax on gas.. but who could afford $6 gas for long? High gas taxers are fine for countries that have universal healthcare and actual social support programs and mass transportation. But does that sound like the US right now? How many folks would lose their jobs when transport costs hit revenue?

We need massive investment in other forms of energy ASAP, but taxing the core of the engine of the economy like a sin tax is not a smart idea right now. Tax porn, tax cigs, legalize marijuana and tax that - but taxing oil right now greatly hurts middle class and working poor folks.

BUT, a good oil tax would be if you tax oil as inventory, so folks have a greater cost to store it in offshore tankers. Increase the tax based on how much is stored - you'd see those oil stocks and prices come down right away.

[KillTheMessenger]

You lose $1k/month for a 25 cent jump on gasoline? So that means you are using 4000 gallons of gasoline a month!

Wow... that's a lot for a small bookshop.

:-)

(PS...for those of you who don't get it... I am just kidding...)

[leduck]

Gas prices have always been way too low in this country.
we would all have been much better off if gas prices were more in linewith Europe.
The higher gas prices would have forced people to consider alternative transportation
we would have real subways..., light rail, the foot, etc
there would be much less urban sprawl

as a benefit..., people would have to walk more and would be healthier
fewer degenerative disease

unfortunately we made a huge mistake and will now pay the price
PEAK OIL will hurt us much more then Europe

[jneuman771]

The oil speculators are back. Received a phone call yesterday evening for investing in oil. They
were saying they would have a yield of 180% . Gee, I noticed I should have been offered 230% based on the adds on this site. We will be back to the summer of '08 again if this is allowed.

[KillTheMessenger]

So somebody wants to rip you off on the phone and you mistake that for the reality of the oil business?

[jneuman771]

The speculators are back. I received a phone call yesterday evening promising me tremendous profit by buying oil. All you have to do is look at the top of this page and gee, they only said 180%
and the above is at 250%...darned. Write your representative and senators. Given our present economy this could send this country over the edge and we will be back to the summer of "08.

[Rule Of Law]

The object point of this story is that even the Saudi minister admits that supply and demand and market fundamentals no longer dictate price! If they ever did!

Manipulation by the hedge funds, sovereign wealth funds, the oil companies and OPEC itself do more to affect price than anything we could ever do. This isn't about taxes. It isn't about how to conserve our way out of a tight spot. It's about how the market is gamed.

It is! Next...

[KillTheMessenger]

Why wouldn't market fundamentals dictate prices? We have passed peak oil in 2006 or 2007 (depending on how you count). Marginal cost for new fields is way above market prices and drilling activity is trending down. So how would the price not rise? Wishing does not count...

[leduck]

Peak of light sweet crude was around 2005 or 2006
Peak of liquids was probably around 2008 to early 2009
MAYBE
at any rate..., we're on a plateau

[GetAbike]

Memo to gas tax enthusiasts-
"Reducing America"s reliance on oil by raising petrol prices to European levels through increased taxes or regulation is not politically feasible, says Steven Chu, US secretary of energy."
interview on Wednesday, May 27th with the Financial Times

Regardless, the price of fuel will go up.

Next.

[KillTheMessenger]

We can pay to our own government or to foreign oil producers. As good Americans we will always chose to support foreign nations before we support our own government. That's an easy one.

[nomoredead]

$2 additional tax on gas........ 50 cents for universal healthcare, 50 cents for green projects and one dollar to pay down our national debt.

[KillTheMessenger]

I will happily pay for that. And more. Where do I sign on?

[Rule Of Law]

And for every new member, their own personal cilice belt to wear as you drive your Prius (as if that weren't torture enough...) plus if you sign up now you will also receive a personalized whip for beating yourself if you begin to feel like the system you believe in needs to be questioned in any way!

[Realization]

Works for me.

[drkazmd65]

It would hurt a bit,... but if we all get decent healthcare out of it, a slush fund for Green projects and less group debt,... I'll not complain too loud or long.

[23000Days]

To cool volatile gasoline prices, add to the tax base, promote frugality and incentivize alternative energies, two things need to be done:

1. Oil and petroleum products need to be removed from the commodities exchanges.

2. Gasoline should be taxed on a sliding scale that keeps the pump price at $3.50/ga.

[drkazmd65]

Not that I look forward to paying the price for $3-4 gasoline again,... but it is their oil,... It ain't ours until we pay them for it. Or until we chose to try and bomb them into submission ('cause that's been working so well for us in Iraq).

As I see it our options are,...

1) Shut up and buy oil and pay the price that the market (and underlying speculators gaming the market) will bear.

2) Figure out creative ways to AVOID buying their oil,... and let them sit on it and try to sell it to us at OUR price.

We need energy independence, and we need it starting years ago.

[nomoredead]

The first company to sell a nice electric car in the US for around $15,000 will sell millions.

[23000Days]

We'll need a supportive infrastructure first. Currently some areas are consuming electricity at the available maximum, causing brown-outs and black-outs. We can't charge a lot of cars in that situation.

[KillTheMessenger]

I wouldn't be so sure about that. No electric car for $15k will be able to compete even against an entry level ICE model in performance/price (including operating cost!). Not even close. The only way we can get those things into the market is by taxing gasoline higher. No other way.

[ntmessage]

Supply manipulation should never be a free market principle.

[KillTheMessenger]

You mean you are going to sue the shallow seas of the deep past for not photosynthesizing harder?

Sounds like a fun lawsuit to me... the judge will probably not laugh much, though, when you are trying to call ten million year old microorganisms as your witnesses.

[ntmessage]

We are awash in Oil. The manipulation is intended to drive prices higher to make any cap and trade scenario look worse than it is.

[Rule Of Law]

Feh!

[SCG]

... And thus second (perhaps final correction) is being baked in. Thanks taxpayers, the oil barons & bankers couldn't have done it without you.

[vippy]

The Dept of Energy just now acknowledged that last year's natural gas was being manipulated. So far they ignore the gas prices and no one is putting a stop to the speculators. Remember, when the banks bought all the oil and it was stored in the ocean on super tankers. Now they are cashing in.
Did you look at the profits of the bank for the first quarter? We are being hit twice, first we bailed them out and now we are paying the price on gas! A lose, lose situation for us little people

[Rule Of Law]

How much of that bailout money is going into the oil markets right now?

[Cyberoptic]

Does it matter what OPEC sets the prices at with speculators involved? Does it really matter? This article seems to miss that factor.

Who has the 65 supertankers, holding some 130 million barrels of oil stored offshore waiting for buyers.? Speculators.

How is that not a consequence of unfettered market forces?

Until we limit speculation, it won't matter what OPEC does. Once that happens, we can deal with OPEC.

And as someone else wrote, until we control speculation, our economy will not recover.

[KillTheMessenger]

130 million barrels? That's enough for six days worth of US consumption and a day and a half of total world consumption. In terms of gasoline, it's less than three billion gallons, i.e. no more than a tankful for every US citizen (it they drive a small car with a small tank!). It's something like half a gallon per human.

So you are saying that just because we have overbuilt our tanker fleet by some 70 ships and half a gallon of gas is in storage for each human being on the planet prices have gone up? How desperate an explanation is that?