Wikinvest Wire

OPEC wants to talk about oil prices

Wednesday, June 11, 2008

This story is just in from the AFP (Agence France-Presse) - the June 22nd meeting in Saudi Arabia to discuss record-high oil prices is to be at the "head-of-state" level and Wall Street investment banks and hedge funds are invited too.

OPEC Secretary General Badri would not be drawn on which heads of state would attend the one-day gathering announced by Saudi Arabia on Tuesday, which was less than a week after the price of crude struck a record high 139.12 dollars a barrel.

The Organization of Petroleum Exporting Countries (OPEC) maintains that the oil market is well supplied and that current prices do not reflect market fundamentals of supply and demand.
...
"The price has nothing to do with a shortage of oil. There's a lot of oil on the market. It's because of speculation and OPEC cannot control speculation," he added.
If the oil market was well supplied, it would produce more than is consumed (which is not the case) and, as for the role of speculators, would there really be any sort of market without speculators?

That's their purpose - to set the market price.

From Wikipedia:
When a harvest is too small to satisfy consumption at its normal rate, speculators come in, hoping to profit from the scarcity by buying. Their purchases raise the price, thereby checking consumption so that the smaller supply will last longer. Producers encouraged by the high price further lessen the shortage by growing or importing to reduce the shortage. On the other side, when the price is higher than the speculators think the facts warrant, they sell. This reduces prices, encouraging consumption and exports and helping to reduce the surplus.
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7 comments:

Anonymous said...

Can't a guy live off the fiat of the land?

Anonymous said...

Call me a conspiracy nut... but... I suspect that Saudi Arabia and OPEC have gotten tired of their losses due to the constantly falling dollar. (Remember that they hold a lot of dollar denominated assets) Consequently, they have begun a policy of raising the price of oil (by limiting output) until the USA takes real steps to stem the fall of the dollar.

This was made clear to Bush when he visited Saudi Arabia about a month ago, and explains why now, all of a sudden the fed is starting to talk tough on inflation and not cutting rates any more. This meeting's real agenda will not be to discuss speculators, but will be to make it perfectly clear that Saudi Arabia and OPEC want us to stop our policy of steady destruction of the dollar.

Chuck Ponzi said...

Tim,

Consider for a moment what that means if it's true what they're saying. It probably is since they have little reason to talk down the price of oil if there truly is a shortage, they'd want it to run up into infinity if they could on a declining asset.

On the other hand, what if they have skads of the stuff with no imminent shortage? If I were a supplier, I'd be pretty scared about all of this alternative energy talk... and I'd be saying something about it too.

Sometimes the most logical answers are right in front of us.

Additions to commodity funds have increased over half a trillion dollars in the past 5 years. Remember how rising equities prices led to rising equities prices in 1999. What about rising home prices leading to rising home prices in 2004-2005? It's just another bubble all over again. Sure, there's some fundamental move justified, but doubling in one year? You gotta smoke a lotta crunk to miss that one.

Chuck Ponzi

Tim said...

I thought Ted Butler's recent comments were interesting:

1. "Index speculators" hold the same size long positions today as they did ten months ago when oil was trading at $70
2. It is the closing of short positions that has pushed up the oil price in recent months

In other words, it's speculators, but not the "index speculators" - more on this tomorrow.

Anonymous said...

So does that mean President Cheney is going?

tj & the bear said...

Everything I've read suggests the Saudi's are doing everything they can to simply maintain current production levels -and- that they're one of the largest investors in alternative energy development.

They're blowing smoke out their ass (just like the Fed).

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