Brazil Now OPEC- Caliber Producer?
Oil supply cartel OPEC has once again become a household word since always-volatile oil prices began flirting with the $100 per barrel mark.
The Vienna-headquartered Organization of Petroleum Exporting Countries comprises 13 nations whose economies rely on oil export revenues.
Achieving stable oil prices is among the group’s purported missions.
The 47-year-old cartel was founded September 14, 1960, in Baghdad as a permanent inter-governmental organization, with five founding members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Today its membership includes the founders along with Algeria, Angola, Indonesia, Nigeria, Qatar, United Arab Emirates, Libya and Ecuador.
The OPEC statute states that “any country with a substantial net export of crude petroleum, which has fundamentally similar interests to those of member countries may become a full member of the organization, if accepted by a majority of three-fourths of full members, including the concurring votes of all founder members.”
Speculation is rife that Brazil will jump on board with OPEC at some point given state-owned Petrobras’ recent announcement of a well drilled at its offshore Tupi Field (see http://www.aapg.org/explorer/2008/01jan/tupi.cfm), indicating the presence of as much as eight billion barrels of oil equivalent in reserves at the field.
The cartel’s member countries are accustomed to big reserves numbers.
According to available information, OPEC had proven oil reserves of 922,482 million barrels of crude at the end of 2006. This represents 77.2 percent of the world’s total of 1,195,318 million barrels.
The OPEC member countries produce about 45 percent of the world’s crude oil and 54 percent of the oil traded internationally.
OPEC’s impact on oil prices has waxed and waned over the years, but its potential clout cannot be overestimated.
For instance, the industry remembers well the most recent price debacle in the late 1990s, when the cartel miscalculated the depth of Asia’s financial crisis and, therefore, the upcoming Asian demand – and opened its spigots several turns only to watch prices crater to the $10 range.
The cartel is known for its ability to increase or decrease oil production in response to market conditions. Meaningful spare capacity has been limited to Saudi Arabia over the past few years, but the amount of idle oil the cartel’s other producers can bring on line quickly is thought to have increased.
The lack of transparency there makes a guessing game of any attempt to define real numbers.
Today, the general consensus appears to be that the group can no longer move oil prices to any significant degree, taking a back seat to such market movers as geopolitical events, increasing fund flows from Wall Street, the NYMEX traders and more. Even Saudi oil minister Ali al-Naimi is on record as saying today’s price fluctuations have nothing to do with OPEC action.
Still, the mere hint of either a production increase or decrease by the cartel often sends the oil traders into a near-frenzy to bid futures prices way up or way down, depending on the situation du jour.
The oil and energy ministers of OPEC member countries congregate at least twice yearly to coordinate their oil production policies relative to the market fundamentals of supply and demand.
It is noteworthy that a brief November summit meeting of OPEC heads of state in Saudi Arabia revealed a tad of dysfunction may be a-brewin’ within the OPEC family.
Despite OPEC kingpin Saudi Arabia’s professed desire for oil price stability, Iranian president Mahmoud Ahmadinejad and Venezuela’s infamous leader, Hugo Chavez, made it clear they think oil is too cheap – even at $100 a barrel.
Perhaps more unsettling was Chavez’s rhetoric about his desire for OPEC to revert back to a militant, revolutionary organization with the member countries using their oil as a political weapon.