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Why can't OPEC reach a deal on increasing oil output?
What are the parties in disagreement about? Why do they disagree? Do you foresee this being the beginning of the end of this particular OPEC group?
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2 Answers
The issue that people have not woken up to is the fact that most of the spare capacity that OPEC countries claim to have likely doesn't really exist. Saudi Arabia has at least a little low-quality crude that it can use to raise supply in a pinch, but some of this is needed to run its power plants, and won't really help export markets. It also reportedly has some oil in "tank farms" that it can draw down for a short time. But how much it has otherwise is very uncertain.
Back in 2008, when George Bush was interviewed on Terry Moran's Nightline, he was asked what he might say to the King of Saudi Arabia to lower oil prices. His response was, "If they don't have a lot of additional oil to put on the market, it is hard to ask somebody to do something they may not be able to do." This sounded a lot like George Bush didn't believe Saudi's claims. (See http://www.theoildrum.com/node/3514 )
The fact that Libya's exports dropped by 1.4 million barrels a day and no one really stepped up with oil of the kind the market needed should have tipped folks off that there was a problem.
Readers need to be aware that nothing that OPEC says has been audited. The high reserves that the Middle Eastern countries clam to have certainly have not been audited. When US companies were in charge of production in Saudi Arabia, its reserves were much lower. It is likely that these reserves are very much overstated, just as the claimed spare capacity.
Maybe it is time to start talking about the emperor having no clothes.
Hi Courtney,
OPEC's inability to reach agreement on oil output has been around for a long time. The main problem is that there are extreme differences of opinion, within OPEC, on what the objectives should be, both short-term and long-term. In addition, each OPEC member's opinion will swing drastically depending on their country's situation at the time.
Some members want to raise the ceiling on oil output, because they need the cash to address current needs more than other member countries. However, members who are not in need of the immediate cash are very happy with the output ceiling, because if the output ceiling is increased, then the price of oil would theoretically drop; assuming all other variables remaining constant.
Recently, it has gotten even more complicated due to the market emergence of electric cars. Some member countries are concerned that the electric car is a very large long term threat to the demand for oil. To combat the threat, there are member countries that want to lower the price of oil such that the financial benefits of electric cars would be greatly reduced or eliminated.
And on top of all the above, the political distrust amongst the members tends to serve as a built-in inhibitor to reaching a amicable accord.
My hope is that the US and other countries invest in the electric car technology and other alternative energy sources such that all the power and leverage that OPEC currently has, becomes a non-issue. Then all the military budget $ can be redirected and lives of soldiers can be spared as once we are out of this oil dependency situation, no one will care about the strategic importance (as it won't be strategic) of the Middle East.
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