Topic: The death of OPEC

[Jim]

Here's something that will affect our oil and gas prices. 

September 11, 2008
The Death Of OPEC

Saudi Arabia walked out on OPEC yesterday. It said it would not honor the cartel's production cut. It was tired of rants from Hugo Chavez of Venezuela and the well-dressed oil minister from Iran.

As the world's largest crude exporter, the kingdom in the desert took its ball and went home.

As the Saudis left the building the message was shockingly clear. According to The New York Times, “Saudi Arabia will meet the market’s demand,” a senior OPEC delegate said. “We will see what the market requires and we will not leave a customer without oil."

OPEC will still have lavish meetings and a nifty headquarters in Vienna, Austria, but the Saudis have made certain the the organization has lost its teeth. Even though the cartel argued that the sudden drop in crude as due to "over-supply", OPEC's most powerful member knows that the drop may only be temporary. Cold weather later this year could put pressure on prices. So could a decision by Russia that it wants to "punish" the US and EU for a time. That political battle is only at its beginning.

The downward pressure on oil got a second hand. Brazil has confirmed another huge oil deposit to add to one it discovered off-shore earlier this year. The first field uncovered by Petrobras has the promise of being one of the largest in the world. That breadth of that deposit has now expanded.

OPEC needs that Saudis to have any credibility in terms of pricing, supply, and the ongoing success of its bully pulpit. By failing to keep its most critical member it forfeits its leverage.

OPEC has made no announcement to the effect that it is dissolving, but the process is already over.

Douglas A. McIntyre

Douglas A. McIntyre is and editor at 24/7 Wall St.

I even refuse to buy gas from any of the stations that use Venezuela oil; namely Citgo stations. 

[Triss]

I do not buy from Citgo either... no way!

But I am a bit confused... is this a good or bad thing?  If OPEC disbands, does't that mean that oil people will have to compete to sell their goods?  And if that is the case would that not be a good thing?  Or am I totally misunderstanding?

[Jim]

It appears to me that OPEC or namely Venezuela and Iran, wanted to decrease production in an effort to keep prices where they are now or to make them go higher and the Saudis disagreed.  Saudi Arabia obviously believes in volume and let the market do what ever it's going to do instead of manipulating it the way some of the others are wanting to.

I don't think OPEC will completely go away.  I just think without Saudi Arabia, it just has no teeth, as the article says.  I applaud Saudi Arabia  for standing up to the zealots in the region.

[Triss]

Ok that makes a bit more sense to me then.  Thanks for the explanation.

[Jim]

It was crazy on the way home from work today.  Every gas station in town had a line of folks waiting to get gas.  I heard one station was limiting each customer to 10 gallons.

I read that the wholesale price is going up even though the cost of a barrel of crude oil was about $109.  Most of the stations around here were $3.49 yesterday.  Today those stations ranged from $3.65 to $4.09.  I actually saw one station that didn't have a line and their gas was $5.23 for regular unleaded.

I guess the wholesalers are running scared with Hurricane Ike heading toward the refineries.  If they lose power for several days we could see gas at $6.00 a gallon next week!  Will it ever end?

[sunsoaker]

I filled up my car at lunchtime today just 'cause it needed it. Had no idea all this stuff was going on. Glad my car was thirsty or I'd have waited for the weekend to fill up.  Who knows what I would have paid for gas then??

[Tina]

I will refill tomorrow. I was watching the news tonight and the oil companies are gouging again, just in case......

[Triss]

I may just go back out and get gas tonight.  Those prices are just outrageous.

[landofoz]

I think OPEC deserves a good kick in the butt.  They have been manipulating for way to long now. 

[Jim]

Lots of stations were out of gas today.  I think the shortage scare consumed the whole state yesterday.  It was a top story on the news this morning.  The attorney general warned against price gouging and threatened to prosecute if proven.  They ask consumers here to send in pictures of signs depicting the price and they would take it from there.  Most of the stations that still have gas are $3.99 or $4.09.  It will be interesting to see what it does this weekend.

[Tonya]

I managed to get gas(at the local country store) for $3.85 yesterday evening. The stations in Shallotte were up to $5 and in Whiteville- it was rumored to be up to $7. Ridiculous!!!

[duh]

I'm not buying gas until this craziness has run it's course.  But then I don't work so I can do that.  Not everyone has that luxury.

[Triss]

We are still sitting just under 3.80 and I hope it stays there or goes down.

[Jim]

Most of the stations around here are $3.99.  I saw some at $4.09 and one even at $4.55.  There are lots of stations out of gas in Sumter and some are taking this opportunity to resurface the asphalt around the pumps.  Smart!

We are being told to expect the prices to start coming back down sometime next week.  Yeah right!

[landofoz]

One a very closely related matter, hubs was speaking with the Stock Broker-type guy he works with (I don't know what their called anymore... financial advisor?) and he said that the government is looking into prosecuting the major gasoline suppliers in the US due to price gouging.  The price per barrel has dropped something like 40% (due a lot to Saudi leaving OPEC) yet the drop at the pump has been less than 4%.   

[Tina]

For a change, I am paying less here than a lot of the country at about 3.55. It does not make me feel much better.

[Jim]

We still aren't back up to par here.  Prices range anywhere from $4.09 to $3.71.  Most of the stations near large popuplation areas have run out of everything but regular and that goes about as fast as they get a truck in.  I think most of the supply is starting to flow again but we are still seeing some stations closed when they are normally open because they are out of gas.