Cheaper oil, cheaper money

The Financial Times filed this report from Abu Dhabi on OPEC's decision to leave short-term rates unchanged. The oil cartel rebuffed repeated calls from the U.S. for an increase in production, but the world's most powerful oil group vowed to monitor incoming data closely to assess the prospects for both output levels and prices prior to their next meeting in February.

Wow. That sounds eerily similar to a Fed meeting.

It seems that, in many ways, the U.S. is to OPEC as Wall Street is to the Federal Reserve. Both the U.S. and Wall street want something cheaper - the U.S. and much of the West want cheaper oil to fuel the world economy and Wall Street wants cheaper money to, well, fuel the world economy.

If, in that first paragraph above, you substitute "cheaper oil" for "an increase in production" and "cheaper money" in place of "lower rates" for next week's Fed meeting, they are virtually the same thing with the important difference that the Bernanke Fed is sure to make money cheaper next week.

The Opec meeting in Abu Dhabi, the first one in the United Arab Emirates in 29 years, was dominated by a struggle between the cartel’s moderates and the prices hawks.

While Saudi Arabia and other moderates, such as Kuwait, had been working behind the scenes in Abu Dhabi to placate consumers’ fears, the price hawks, led by Algeria and Venezuela, opposed any output increase and said a price of $100 a barrel was fair.

Delegates said ahead of Wednesday’s meeting that the cartel was considering two options: either increasing its official production limit by at least 500,000 b/d or leaving it unchanged. But the proposal for an increase was not formally tabled at the critical meeting of the ministers at the Emirates Palace hotel in Abu Dhai.

The price hawks gained the upper hand after moderate Gulf producers dropped their desire to raise production following a price drop of about 10 per cent last week. Worries about the strengh of demand among the moderate countries of the Gulf, including Saudi Arabia, finally tipped the outcome towards maintaining the current official quotas.

And the similarities, perhaps, continue...

Hasan Qabazard, Opec chief economist, said: “There is going to be some extra crude oil from Angola and also from Iraq.” He added that the return of the United Arab Emirates’ largest oilfield following a period of maintenance will also raise the real production level.

“A bit of cheating does not hurt anyone,” a senior official said ahead of Wednesday’s meeting. Another delegate added: “The important figure is not the official quota but the real volume already being supplied to the market or that is on its way.”

If only it were as easy to boost the production oil as it is to boost the production of dollars.