Posted on 10/28/2014 5:32:13 AM PDT by thackney
The recent drop of $20 or so in oil prices from near all-time highs has pundits racing for their typewriters. Okay, laptops or something. Many have declared OPEC dead or ineffective, and one academic has noted that OPEC almost always produces over quota, proving it’s not a competent cartel.
Needless to say, aged methane emissions like me tend to sign in our beards when we read this. OPEC has been declared dead more times than Mark Twain or the Boston Red Sox (next year for sure!) and yet it continues to hold meetings and set production quotas, as if thousands of pundits aren’t shoveling dirt on their coffin. Some years ago, when told that a prominent oil economists had declared OPEC relevant, I responded that OPEC is never relevant until its relevant.
Numerous statistical studies have tried to related price changes to: OPEC meetings, OPEC cheating, changes in OPEC production, changes in quotas, and everything but the number of hard candies the ministers eat during their deliberations. Many of these don’t find any significant correlation, but they are constrained by using monthly or quarterly production data, mixing current prices with a market balance whose reporting is lagged by three months or more, and not including a wide variety of economic and geopolitical influences on the price....
Frankly, OPEC is neither hobbit nor orc, but more like Smaug, a sleeping dragon guarding its own interests. For most of the past decade, OPEC has not needed to act because geopolitical problems have kept prices high. That is not the same as being powerless. And the inaction of the past few weeks as prices fell does not reflect an inability to act, but a preference for lower oil prices, at least by the largest members.
Because if the members reached a consensus...
(Excerpt) Read more at forbes.com ...
OPEC is finished.
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