The Running Commentary

OPEC you cannot change the law of Capitalism!!!


Below an article ran yesterday which indicates the greed that Capitalism breeds. The worst possible thing that OPEC could do is drop the level of production, thereby creating a false pricing level.  The facts for this are based on two capitalistic fundamentals:

  1. Supply and Demand: If the demand is high the prices are free to be high, conversely if demand is low the prices should reflect this.
  2. False wealth is not sustainable, anybody knows that Capitalism does not permit fake wealth, if does permit exorbitant wealth but never fake wealth, in the same way that it will not allow fake or inflated prices, when demand does not support them.

We will see two things happen here (possibly a third) 

  1. The drive to find alternative energy solution will grow exponentially as the world says, “Why the hell should be let a bunch of oil sheiks rule us”. In effect sealing the fate of oil to be relegated from the prime energy position
  2. The effect on the global recession in the short term 18 months will be extended as the world economies are further burdened by falsely high prices.
  3. The price of oil will drop further in the next day or two. 

Of particular note to me is the arrogance of the spokesperson, when you read the comment in the article Khelil told journalists. “I hope we have surprised you.”

And yes you guessed it, today the dung ball goes to the OPEC nations for trying to change fundamental capitalistic principles – you cannot succeed!

Oran, Algeria – OPEC ministers on Wednesday approved a record output cut of 2.2 million barrels a day and looked to non-member oil producers Russia and Azerbaijan to make reductions of their own.

Combined with the cuts Russia and Azerbaijan said they were prepared to implement, the OPEC move could take about 2.8 million barrels a day off the oil market at a time of dwindling prices.

OPEC president Chakib Khelil, asked about the OPEC cut following a cartel ministerial meeting here, said: “its 2.2 (million).”

Officials had earlier said the reduction would be on the order of 2.0 million barrels a day from the current output target of 27.3 million.

“We did better than what you were expecting,” Khelil told journalists. “I hope we have surprised you.”

The OPEC action, designed to prop up prices, had the opposite effect on the market.

The price of New York crude oil sank to the lowest point in four and half years, nearing $40 per barrel.

In late afternoon trade on the New York Mercantile Exchange (NYMEX), light sweet crude for delivery in January tumbled to $40.20 a barrel – which was the lowest level since July 2004.

On London’s InterContinental Exchange (ICE), Brent North Sea crude for February slid 83 cents to $45.82 a barrel. The January contract had expired Tuesday at 44.56.

OPEC ministers called the meeting here to block a steady slide in oil prices, which are now 70 percent off their high points of $147 a barrel in July, as demand dries up in recession-hit industrialised consuming nations.

Just before talks opened, non-members Russia, which attended the session and Azerbaijan said they were ready to cut their own oil production by about 300,000 barrels a day each.

OPEC officials had earlier appealed to non-member producers to help them stabilise the market. Opec Secretary General Abdalla Salem El-Badri said on Tuesday he wanted to see a cut of 500,000-600,000 barrels a day by non-members.

The appeal was renewed in the official statement.

“The Saudis are traditionally the moderates or ‘doves’ within the cartel and this call for so severe a cut is bad news for global consumers – unless any higher prices ultimately lead to fresh exploration and drilling,” said Cameron Hanover analyst Peter Beutel.

“The big problem with a production cut of two million barrels per day or more is that it will mean that OPEC will have cut nearly four million bpd this year, an amount unparalleled in history,” added Beutel.

CapitalismEconomicsglobal wealthOil PricesOPECRecession

Mike • December 19, 2008

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