THE BLOG

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

06/28/2009 05:12 am ET | Updated May 25, 2011

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!