THE BLOG
12/06/2009 04:54 pm ET Updated May 25, 2011

When Saudi Oil Minister Calls Oil Prices 'Perfect,' Ladies Better Secure Their Handbags

There he goes again. Our clairvoyant and sage Saudi oil minister Ali al-Naimi proclaiming for all to hear that "the price is perfect," referring to the current price of oil ahead of OPEC's scheduled meeting later this month. Then, in chorus-like lockstep, other similarly inclined oil ministers of various OPEC persuasions lend their voice to Saudi Arabia's lead as Libya's oil minister "...we don't expect any change in the quota." All this from members of a cartel that has managed to cut more than 4 million barrels production a day from the world's oil supply.

Indeed Mr. Ali al-Naimi and his OPEC cartel brethren should be very pleased. Since December of last year, they have been able to manipulate the price of oil by 258%, from $31/bbl last December to $80/bbl a few days ago (last at $75+/bbl). By contrast over the same time frame the price of gold has increased some 45% in value while the dollar has retreated some 15%. Correlation? Yes, but minimal at best, and certainly not the driving force behind oil's price increase as presented by endless talking heads.

OPEC, in conspiring to hold back over 4 million barrels of oil a day from the market, is thereby clearly colluding to impact oil's price. It is a willful policy seemingly tolerated by governments as they are not willing to confront this egregious exercise in market manipulation.

By not even confronting the OPEC cartel conspirators on this issue, even at such readily available tribunals as the World Trade Organization, we are sending a signal to Mr. Ali al-Naimi, et al that we are tolerant of whatever they do and will simply look the other way.

And that is the key question. What else is OPEC, or its members, or its agents doing to impact the price of oil? It has been this post's contention for some time that the exchange traded oil futures, on which the real time price of oil is based, can be manipulated and most probably is being manipulated (please see: "The CFTC and Department of Energy Snore Away While the Oil Patch Makes Hay"). That the various commodity exchanges around the world, ranging from New York, to London, to Dubai, to Singapore, to Hong Kong and so on, are so intertwined through cross trading and arbitrage that if you are able to move the market in one, it impacts them all. That the OPEC members have the resources (hundreds of billions in sovereign wealth funds and then some) and the clear goal of keeping the price as high as they reasonably and politically can (ergo "The Perfect Price"). And given that they have been able to get away with their OPEC production quotas (our anti-trust laws would classify that as 'restraint of trade,' calling for jail time) with hardly a demur from the world's consumers, why not go the next step and play the commodity exchanges, since being asleep or tolerant of being taken to the cleaners seems to be in the DNA of their customer base? This while being supported all the while by non-OPEC oil interests who are direct beneficiaries of OPEC's manipulation, kindred spirits, and the speculative excesses of bank holding companies playing the oil casino game while accessing zero cost Fed funds. All are in there, pitching for ever higher oil prices.

Please remember Mr. Ali al-Naimi's earlier call to arms counseling us loudly and clearly to "Build refineries, build refineries, build them right now," a 'brilliant' suggestion at the time given that barely two weeks ago Valero Energy Corp. announced it is "permanently closing its major gasoline refinery in Delaware laying off 550 workers ... couldn't find a buyer for the 210,000 barrel-a-day refinery...and last month Sunoco Inc. closed its Eagle Point refinery in New Jersey "). Great call, Mr. Oil Minister.

Or Minister al-Naimi regaling us with OPEC's "noble cause" at a time when oil prices were flirting within the $30-$40 range in December 2008, instructing us -- "the purpose of the $75 price is for a much more noble cause. You need every producer to produce..."

Then in February, with oil prices slipping under $40 a barrel, there was the oil minister once again, this time warning us, one must assume with a straight face, that we were veering toward a "nightmare scenario" if we sought to speed up development of alternative fuels.

So when we are advised by the same Saudi Oil Minister that "prices are perfect" I can only suggest, ladies and gentlemen, that the ladies check their purses at the door and that gentlemen pay close attention to the whereabouts of their wallets.