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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (47089)	10/18/2004 7:28:27 PM
From: IQBAL LATIF	Read Replies (2) \| Respond to of 50167

VIEW: Oil at $50 no party time for OPEC —Iqbal Latif dailytimes.com.pk OPEC members with minuscule reserves need prices to remain high for the next twenty years. After that they will run out of their reserves. However, Saudis, Iranians, Iraqis and Kuwaitis who have reserves that will last beyond five decades will benefit most from more balanced prices OPEC members with minuscule reserves need prices to remain high for the next twenty years. After that they will run out of their reserves. However, Saudis, Iranians, Iraqis and Kuwaitis who have reserves that will last beyond five decades will benefit most from more balanced prices During the first eight months of this year, the international price of oil per barrel has risen from just under $29 to nearly $55. For the last 30 years, the price of oil has been the single most important determinant of the economy and the stock market. However, there is something amiss in the steep rise. While in the short term it provides an opportunity, I believe, in the long term, it sounds like the death knell for the OPEC. Oil pricing is a double-edged sword. If you let it drift too low, quota cheating by the single-commodity economies will drive it to under $10. If you keep it too high the long-term impact can be disastrous. Thus, oil rich nations like Saudi Arabia, Iran, Iraq and Kuwait are caught up in a quandary. They need to maintain an oil price that helps their economies grow into more diverse ones. At the same time they need to keep it so low that new producers and new technologies remain out of contention. The authors of Oil Factor, a gloomy book, claim that the oil price will soar above $100 a barrel by the end of the decade — possibly sooner. The Oil Depletion Analysis Centre (ODAC) is convinced that the world is perilously close to an oil shock caused by scarcity, not politics. OPEC’s 11 member states produce 26 million barrels of oil a day — 39 percent of the world’s oil production — that accounts for half of all oil exports. By the end of 2004 they will have earned an extra $360 billion. Non-OPEC Russia that already produces as much oil as Saudi Arabia should one day become the swing producer. There are two vastly different kinds of oil producers in the OPEC itself. Self-interest requires them to pursue two conflicting oil pricing policies. OPEC members with minuscule reserves — like Venezuelans and Indonesians — need prices to remain high for the next twenty years. After that they will run out of their reserves. However, Saudis, Iranians, Iraqis and Kuwaitis who have reserves that will last beyond five decades will benefit most from more balanced prices until their economies’ dependence on the single commodity is gone. This indicates a fault line within OPEC. The global economy was consuming around 65 million barrels of oil annually in the early ‘80s. However, its total size then was only $12 trillion. Today, a global economy of nearly $50 trillion consumes only a slightly larger amount of oil. The world is thus becoming a more efficient user of oil. If a lesson is to be learnt from the first oil crisis, we need to appreciate that high price will ultimately reduce the consumption of oil. Alternative sources of energy — including some forms of fuel cells — that are not competitive at $35 per barrel may become attractive if the price stays at $55 per barrel. Most OPEC members produce nearly at full capacity. Only Saudi Arabia and the United Arab Emirates have spare capacity. Saudi Arabia thus remains the kingpin. It has a quarter of the world’s proven reserves, about 262 billion barrels of oil, under its vast desert. Add the reserves held by the country’s allies in the OPEC, and the total is a whopping 815 billion barrels, some three-quarters of world reserves. Most of the extra oil in case of a global crisis would have to come from Saudi Arabia, the world’s largest oil producer, by far its largest exporter and OPEC’s traditional swing producer. It has an estimated two to three million barrels a day of spare capacity. When doubts are cast on Saudi swing production, all bets are off. Oil Age will end one day, as Zaki Yemani said. Oil was dirt cheap at $10, it is now $53 above what it takes to produce in Saudi Arabia. But OPEC realises the long-term impact of high prices on the ability of inefficient producers who can produce a lot more at around $30-32 a barrel. The biggest threat to oil futures comes from a global economy growing efficiently on less and less oil. It also signals that consumers are shifting to cleaner economies while producers are burdened with old consumption patterns. On the security side, less revenue from oil creates havoc for economies like Russia and the OPEC. Even terrorism becomes difficult to handle if jobs are denied in ministries of Saudi Arabia and Kuwait. High oil prices can buy loyalties in commotion-prone Saudi Arabia. Nicely tied to these handouts, the beneficiaries become bigger terrorists if denied the gifts. On the other hand, high commodity prices make OPEC countries great consumers. If the West keeps producing cleaner service economy with less consumption, and commodity-rich OPEC countries fail to understand the impact of energy efficiency, their dependence on the West will further increase as higher oil revenues will make OPEC populace more addicted to Western products. When taps on oil are turned off the repercussions for OPEC would be huge. Extreme swings in oil pricing create structural imbalances and grave social demands that are nearly impossible to fulfil at low oil prices.