as for OPEC having lost pricing power, i'm not so sure about that.
oil prices are of course set at the margin, and he who has surplus production capacity sets the rules. back in the 1950s and 1960s, Texas oil producers had the capacity and set the prices. they operated in a cartel fashion under the Texas Railroad Commission. the Texas Railroad Commission decided each month how much each member could produce, as a percentage of their capacity and reserves. in the early 1970s, when the US lower-48 reached their Hubbert peak, the Railroad Commission set the production limit to 100% of capacity. that meant they no longer had a marginal production capacity surplus and could no longer control the price of oil. the Texans were no longer players.
OPEC was in fact modeled on the Texas Railroad Commission. they operate the same way, with each member having a declared capacity and reserves, and allowed to produce X% of it (the OPEC quotas, of course, were the reason all the OPEC members magically increased their stated reserves during the "quota wars", and also why those reserve numbers don't go down from year to year, since each member wants to keep their allowed production high). right now, Saudi Arabia has the only significant surplus capacity of a couple million bpd. so it is ultimately the Saudis and OPEC who decide where oil should be priced, especially with strategic reserves at low levels. OPEC could achieve higher prices at present, and in fact increase their revenues on lower production levels due to higher per-barrel prices. but their Harvard-educated game theorists tell them it is better to keep oil cheap so as to maintain a mindset of complacency regarding energy conservation in the West. this complacency is obvious in a place like Texas where everybody drives hulking SUVs and Suburbans, and lately the obnoxious-chic Hummer. it is also manifested in the low levels of R&D on alternative energy sources, as well as low gasoline taxes in the US.
however, the Saudis may need to raise revenue, which will require higher oil prices, due to their financial problems. it seems only a matter of time before they start jacking up prices.
the major non-OPEC fields in the North Sea, Norway and Venezuela all have passed their respective Hubbert peaks, and in the case of Norway for instance, the projected decline in output over the next decade is massive
and total world production is likewise near its Hubbert peak right now, or may have passed it already. what is left is depleting fields in the West. within a few years, global production will slowly descend at a rate of 1-2% a year, even as demand continues to rise at 2% a year. couple this with declining production in the West and the pricing power is all in the ME. while oil may stabilize at $25 for the rest of this year, i don't see how you could have a better setup for much higher oil prices in the years ahead, even without supply disruptions due to ME conflicts. |
