Posted on 08/02/2023 2:48:36 AM PDT by Cronos
The oil cartel has never lacked tensions and internal conflicts. But OPEC – or actually OPEC+ – has never faced such challenges as it does today: the rapid development of RES and forecasts of an equally dynamic decline in oil demand.
– In a growing market, time is your friend. Just wait a bit for things to settle down and get better. In a shrinking market, time becomes your enemy. You have to cut, cut and cut - argued at the end of last week on CNBC station Per Lekander, managing partner in the Clean Energy Transition investment group. – The more negative the indicators are, the less cooperation there is. And let us remember that the last decision of the Saudis was actually made on their own. So, if my predictions come true, I'm sure the cartel will fall apart," Lekander said.
In this scenario, as you might guess, OPEC member states would compete in the market after the collapse of the cartel, which would cause the price of black gold to drop to $35 a barrel (in the short term) and then $45 a barrel. (medium). – There was a time in the 1990s, and then in the 2000s, when they were unable to set the price of raw material on global markets. But for most of the last decades, since 1974, the price of oil has been artificially high, says Lekander. However, OPEC has never had to face such a vision as it does today: that the world will simply stop needing oil.
Turning a blind eye to lefties
Of course, a glance at the headlines of websites devoted to the economy is enough to negate the predictions of the Clean Energy Transition manager. "Oil gains fifth week on signals of further supply cuts," Reuters left no doubt in its weekend material. But these cuts apply not only to OPEC countries (which today account for 40 percent of oil supplies in the world), but also to, for example, American oil companies or global multinational giants.
The latter could afford a lot a year ago: the shock caused by Russia's attack on Ukraine and subsequent packages of Western sanctions pushed prices to sky-high levels. This, in turn, partly justified the exploitation of new or hitherto hard-to-reach deposits, and therefore expensive to exploit. But those prices are a thing of the past, and the record-breaking profits of the concerns turned out to be a one-time gift from fate (actually the Kremlin). Last week, ExxonMobil, Shell and Total reported declining revenues from the oil business. "Companies have had a killer year but are now reeling: some have seen 50% declines," Fortune magazine summed up the situation late last week.
A similar meeting was held - as you can easily guess - by the exporting countries. In their case, the situation is even more dramatic: most, if not all, of them base their budget revenues on the sale of oil, constructing spending plans based on forecasts of sales of certain quantities of oil at a certain price. And when the price falls below the threshold set in the forecasts, a dramatic decision must be made: sell more raw material at a lower price, but so as to achieve the designated amount of revenue, or sell a predetermined amount of raw material and fill the hole with blackheads or through spending cuts.
In the case of OPEC countries, spending cuts would often mean the risk of serious social unrest – in most such countries, a large part of the population works in the public sector. It happens that in positions that are redundant, but provide peace to the ruling regimes. Not all of them can afford to cover the hole with blackheads, because Venezuela, Iran or Algeria lack cash even in good times for oil companies. Throwing more raw material onto the market could, in turn, mean the opposite effect to the expected one: a further drop in prices.
That's why OPEC has always responded to trouble by reducing production. It was not uncommon for this reduction to be illusory - cartel members have always defended themselves against any official monitoring of their oil interests, but it was an open secret that at least some of them significantly exceed the amounts and limits set under the "reduction". For the cohesion of this alliance, the richer turned a blind eye to such "levies" of the poorer ones.
The crumbling OPEC structure
For several years, however, more and more cracks have appeared on the monolith. The most recent one appeared a few months ago: in March, The Wall Street Journal described the growing tension between Saudi Arabia and the United Arab Emirates, which has so far taken a relatively discreet form. “When Abu Dhabi hosted a summit of Middle Eastern leaders at one of the sheikhs' seaside palaces, the Saudi heir to the throne, Crown Prince Mohammed bin Salman, was conspicuously absent. But already a month earlier, the leaders of the emirates had bypassed a high-level Sino-Arab summit organized by the Saudis in Riyadh, described the reporters of the American newspaper, gradually leading readers to the conclusion that the UAE was preparing to leave OPEC.
Commenting on the WSJ publication, anonymous representatives of the emirates distanced themselves from these speculations. But also no one can deny that from the perspective of Dubai or Abu Dhabi, the atmosphere in the cartel is thickening. Traditionally, the emirates have been a close ally of the Saudis - the sheikhs did not miss any opportunity to join the announced cuts in oil production, they usually voted in line with the Riyadh line. However, it is possible that the paths of two of today's most important producers in the Arabian Peninsula are beginning to diverge: while the Saudis have vigorously (and unsuccessfully) engaged in the war in Yemen, the sheikhs have taken a much more cautious stance on this matter. Both compete for investors willing to engage in bold and expensive ideas of Arab rulers. In addition, the aforementioned Saudi heir to the throne – de facto ruling the kingdom today – is famous for his bluntness and tendencies to impose his will on the environment, which may also be revealed on the OPEC forum: after all, the decision on the last cuts was imposed on the cartel almost exclusively under the pressure of Riyadh. While no one in the kingdom squeaks in protest, the Peninsula doesn't have to like it.
And there is a precedent: at the turn of 2018 and 2019, Qatar withdrew from the cartel, followed by Ecuador a year later. While the latter did so because of problems in internal financial settlements and the general chaos that translated into the inability to comply with the decisions of the cartel, in the case of the Qatari it was primarily about politics: Qatar repeatedly clashed with the Saudis in regional policy, relations with Iran, wars in Yemen and Syria or spheres of influence in the Arabian Peninsula. "It's a big deal," commented Andy Critchlow, an S&P Global Platts expert at the time. “I have been dealing with OPEC for 20 years and I cannot think of any major threat to the future of the cartel. Actually, OPEC ceases to exist, it will be an organization of two players: Saudi Arabia and Russia - he added.
The problem is also that if we adopt Critchlow's perspective - and therefore that OPEC is today a tool of Riyadh and Moscow - it is difficult to find unanimity between these raw material powers today. In recent years, the Kremlin has managed to win the friendship of Mohammed bin Salman - when, after the murder of journalist Jamal Khashoggi, a critic of the House of Saud, the door to the Western salons slammed shut on the heir to the throne, Vladimir Putin willingly and cordially welcomed the Saudi to his place. Moscow and Beijing also eagerly took the place of the US in the diplomatic hierarchy of Riyadh, as evidenced by both the cool reaction of Arabia to the Western sanctions against Russia after the attack on Ukraine, and the reconciliation recently worked out by Chinese diplomats between the Saudis and Iran.
Kremlowskie unique
But recent OPEC decisions have been made against the Russians. The protracted war in Ukraine is a bottomless financial well for the Kremlin, the war machine can only be fueled by the proceeds from the sale of raw materials. Putin cannot afford to reduce production, because he is already fighting for survival today. Yes, Russian Deputy Prime Minister Alexander Nowak assured in June that Russia is fully meeting its commitments to reduce production. On the other hand, his assurances look like a lie. Russia has promised to cut production by 500,000 tons. barrels a day, starting from March, wrote Ben Cahill, an expert at the Center for Strategic and International Studies, in an analysis published the day before Nowak's speech. – But at least until the end of May, she did not make any significant reductions. On the contrary: it maximized production.
Contrary to appearances, Lekander does not have to be a fantasist. The dropping out of the cartel by players like Qatar and the UAE significantly loosens OPEC's grip on global markets. Declining demand for fossil resources makes the natural resources of cartel members increasingly illusory. The structure of the cartel may be useful in controlling a group of small players - for whom loans or aid from the Russians or Saudis may be more important than the income from oil they earn (after all, remember that the Kremlin has already announced the cancellation of over $23 billion in debts it owed Africa). However, independent Qatar was able to significantly ease the pressure on Western fuel markets after cutting itself off from Russian minerals. A few such standalone players of medium value will make OPEC's disintegration simply go unnoticed.
I wonder if waiting OPEC out is possible, as the author suggests, when our governing criminals are wanting the pump price to increase. Would our governing criminals control and manipulate the price at the pump? My answers is “yes”
Absolute BS!
There is ZERO evidence that "green energy" can replace fossil fuels.
I kind of doubt that OPEC is finished, given the re-alignment taking place in the world, where the countries where the real economic growth is taking place, the BRICS+, will soon no longer have to take orders from the collapsing West, so they’ll buy oil as they please, and so market forces will be at play, and oil is a far better deal than the ‘sustainable’ alternatives are.
we;; I won’t call them “green” as they aren’t completely that.
alternative energy can replace some amount of fossil fuels.
If India and the rest of the equatorial countries + southern USA put in solar panels, then they cut a lot of fossil fuel usage.
Add in nuclear and wind and you could end up cutting 40% of fossil fuel usage. That, combined with the further fuel efficiency of engines and oil has a good tumble down.
OPEC has lived through wars between members (real shoot and kill wars), change of members’ leaders, governments, good and bad economies. They have been projected to breakup up about 9 years out of 10. Good luck with this projection.
What is your education background?
Are you an engineer?
I bought my first solar panels in 1983. Still have them, only used them for Field Day (Amateur Radio).
They have their place but won’t run a modern household.
The laws of physics haven’t change.
I am a mechanical engineer, though moved into IT about 18 years ago
I have solar panels in my garden and during summer it powers up my home needs - we’re shaded by the nearly forest, so its not terribly sunny and in winter it is practically zero.
As I said - not “replace” completely but reduce energy sufficiently enough so that the need for oil will reduce. The price of oil is artificially inflated, so a reduction in consumption will have a snowball effect - especially if the cartel doesn’t band together on prices.
OPEC does not control prices except during international crisis.
Wind nor Solar power has advanced, but both have major issues. And will never compete Fossil fuels. How long will Fossil Fuels last? Nobody knows that answer.
Nuke power has security, waste disposal and if we ever have a military conflict they can be used as a weapon against the inhabitants.
Demand for oil is not declining. Nations that are actually developing such as China and India will buy up any surplus oil. Only the West, which is ruled by an idiotic doomsday cult of perverts, will import less oil as their economies continue to contract, their citizens are reduced to serfs, and their idiotic keyboard monkeys keep calling for more war while their nations deindustrialize around them.
Wide scale fracing in the US is the answer for our energy needs.
—”They have their place but won’t run a modern household.
The laws of physics haven’t change.”
A few years ago my brother went ‘all in’ with solar panels.
He lives in an all-electric house in Colorado (no gas service in the area).
He has a locked-in agreement for the purchase of unused power at the same price he pays (retail).
The nighttime/snow/cloud periods are covered by the typical surplus. No expensive battery is needed.
So far it covers well over 80% of his usage for the last few years. Yes including his AC/heat pumps and swamp cooler.
Stable markets reduce opportunities for excess profit to a minimum. This is a powerful incentive for major players to create instability, and the so-called “green energy” racket serves very well in this regard.
It’s becoming more and more apparent that, when the costs of resource extraction, manufacture and recycling are factored in, solar is a net carbon-budget loser. Better never to use them at all, except for remote locations where there is no grid access.
Farming, cattle and oil fields have long been the basic industries in Texas.
I’ve seen many booms and busts in the oil industry.
It is insanity for people with no connection to those elements to try to tell us from DC or Europe how to run them.
Our #ComDems in DC don’t have enough sense to run a burrito cart. But they want to rule us as if we were Surfs.
Any time I here all this Green stuff, it makes me very angry. Fools.
I lived in the mountains in NM for many years. Where I lived you only needed air conditioning about 1 or 2 months a year. High, dry and cool. At 6,000 feet with mountain tops 9,000.
I spent every other week on business in Colorado for about year and a half. Love the mountains and all of the Western slope. Their climate is very similar.
Yes, you can live off the grid there and make it work.
The Davis Mountains are the closest we come in Texas.
—”Yes, you can live off the grid there and make it work.”
He is not off the grid and has over 3000 sq ft, full basement, attached 2 1/2 car garage.
A nice size house.
I know they claim to send power back into the grid. But the power generated to send into the grid, will not make a ripple.
In USA, AC power plants generators are often 13.8 Thousand volts at 60 HZ. Solar panels generate electricity as DC low voltage.
If you look at the ratio of power and voltage it is staggering. And it must be synchronized with the 60 HZ on the power line, and in order to generate AC from DC it must go through an inverter. They do that by chopping and switching, in pulses. AC power plants do not chop, the AC; the power is generated as a sine wave by the design of the generator. Sine wave AC reduces harmonic content.
So, the government can do whatever they want and change regulation of the power industry, that does not mean that it makes sense.
The Green Things, don't make sense. They may be within the law as prescribed by the government. That does not mean they can defy the laws of physics.
The Greenies don't have a clue.
The public does not care, except how it affects them.
So a lot of things make no sense.
LOL... been hearing this since the early 70s.
Are there any others these days?
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