Sunday, October 8, 2006

Don’t Believe a Word OPEC Says. The Organization is Incapable of the Truth

The following quote is from a article published today…

“Saudi Arabia and five other OPEC members cut oil output by a total of 1 million barrels a day in an effort to revive prices that lost a quarter of their value in two months, a spokesman for the group said.”

Never, ever, believe anything that OPEC says. Never believe that they did something for the reasons they state. NEVER. Further, OPEC has never warned the markets. Whatever cut they are talking about today you can be sure happened already.

Since one cannot believe their statements, one has to wonder as to their true motivations and circumstances. Was there, in fact, a voluntary cut – or was there an inability to meet recent production levels. This we will know within 12 months, and it is very much worth paying close attention to.

If, as I suspect, OPEC has been producing flat out; and if, for whatever reason, OPEC is unable to maintain their production at these levels; does anyone really believe that OPEC would come out and be truthful about these circumstances?

I have no immediate data point to support this contention, but it would seem to me...

1. With prices only 13% below their yearly average (who compares commodity prices to their top tic? These are not equities) and with prices still far outside and above their historical range
2. With peak winter demand for oil in the Northern Hemisphere just weeks away
3. With inventories only in the middle of their “days of usage” range for the past 8 years
4. With no proven ability to increase production quickly if a cold winter should materialize
5. And with the American Energy Secretary Sam Bodman ringing their phone off the hook pointing this out

That OPEC (we are really talking Saudi Arabia here; the Saudi’s, Russia, and Iran account for over 50% of world oil exports. Iran needs hard currency much more than oil, and Russia is not a member of OPEC. Every one else is “small potatoes”) would be disinclined to snub their largest customer, political patron, and military protector just prior to the mid term elections. Especially a Republican President, and a Bush at that. I have no political axe to grind. I am merely pointing out the close relationship of the Saudi’s and the Bush family and the Republican Party. The Saudi’s need us, and we need them.

The Saudi’s own roughly 8 % of the U.S. equity markets, and are fully aware of the risk high crude oil prices present to the world economy, especially at a time when the risk of severe damage to the economy from the bursting of the housing bubble is a serious concern.

The argument that the production cuts, if in fact we see production cuts, are in reaction to the recent oil price decline sounds plausible, until you take it to task, and then the argument seems somewhat specious - at best.

Is OPEC really cutting oil production voluntarily? Or is geology cutting oil production for them. Stay tuned.

Mentatt (at) yahoo (dot) com

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