Michael:
First allow me to, compliment you on a well-written piece. You certainly have it taped for the short term. I agree it will be a miracle if the members of OPEC can agree on a policy to cut production and enforce it. But on the other hand if they are to survive as a club, sooner or later they are going to have to get their act together. I feel we must regard the present world economic situation as temporary. There are just too many countries, that either must restore their economies ( Russia, Brazil, Japan etc) or upgrade their standard of living and development far beyond what it is today. There are so many in this category (1.2 billion Chinese).
If as you point out, the price of crude may be substantially lower in the future, it will surely increase consumption. Such is human nature. Petroleum products are normally out of sync with other commodities and services. An example is airlines; competition and the price of fuel control their profit margins almost exclusively. Just because the price of crude is lower do not expect to pay less for a seat on an aircraft. Thus there is a certain buoyancy and elasticity between price and consumption, even on a global scale. We tend to regard things in short-term segments. Time can and will change just about everything.
There is one major factor you have not mentioned and that is security of supply. There are so many parts of the world, even beyond the Middle East that have all the elements in place for turbulence and unrest. Surely our major policy makers are not going to forsake their secure sources of oil & gas just for lower prices. Before that could happen there will probably be tariffs and taxes at import points.
It is not surprising that the major oil companies are interested in increasing their control and holdings in the Middle East. (A camel getting his nose in the tent). Such also is their nature. Another factor is Inertia in the System. Pipelines, contracts, customer's etc. are all in place. These cannot be changed quickly. I simply cannot visualize boatloads of Frozen NG replacing our vast pipeline and distribution facilities, which even as we speak are coming online.
It appears things are improving in Asia. That is the first step toward Global Recovery. When that finally happens, expect more of the same…
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