A while back I posited that OPEC had finally figured out that the US had whistled along as they headed down the road to oversupply. The chronic disorganization which triggered the glut during 1997 was caused by OPEC, but was quietly applauded by US interests who were enjoying the benefits of historically low strategic commodity prices. The Saud's have since realized the error of their ways and begun policing themselves appropriately. Losing a couple hundred billion dollars in oil revenues will do that for you, real quick. In fact, their renewed focus has managed to turn the elephant that is "global oil supply demand" into a dancing pony.

The problem for them is that they are now inflicting some serious pain to the US economy. With the current state of our bubble we are particularly susceptible to pain and have begun to thrash about to the point where Bill Richardson resembles Dustin Hoffman in Marathon Man.

In the article below, the Saud's confirm my original theory; that we pissed them off. So you see, it really doesn't matter how many trips Bill Richardson makes, the ball is clearly in the OPEC court. The article below is a warning shot to other OPEC members to remind them who runs the show. If the Saud's want to, they can prick the bubble tommorrow or when they meet in March. While I don't think they will do that, I also don't think they're done watching us squirm.

I predict that they will raise output by 500-700 per day at the March meeting. In a best case scenario, they would raise output by a million plus bbls. In a worst case scenario they would extend the cuts.

In my expected scenario (500-700) the US experiences 2.00 per gallon gas by this summer due to high cost of crude and exacerbation of already low refinery utilization (due to increasing disruptions caused by nasty squirrels and EUtils-but not god forbid, Y2K!). In this scenario, the price of oil stays around 27-28 dollars per bbl for WTI and 26 or so for Brent. Raising production only serves to slow down the crisis, it doesn't stop it at all. At this point we've acheived acceleration of stock depletion which is hard to turn around.

In my best case scenario, the price of WTI falls off by 4 bucks and stabilzes around 25 bucks for WTI and 24 for brent. Gas is still out of control this summer due to outages and problems, but only gets to 175-180.

In my worst case scenario, the cuts are extended and cheating only mildly impacts the production. In this case, oil rises to 34-35 per bbl basis WTI and Brent is 32-33. Gasoline is off the meter and our economy makes a giant flushing sound as we spiral into the toilet on the stock market etc. To all the geniuses out there who think oil's not inflationary, try 34 dollar crude

For educational and research purposes only:

Saturday February 19, 4:01 am Eastern Time Saudi daily says OPEC can make own decisions DUBAI, Feb 19 (Reuters) - A Saudi Arabian newspaper said on Saturday that OPEC members, due to meet in Vienna next month to discuss output policy, have the right to take whatever decisions were necessary to maintain solidarity within the cartel.

The Arabic-language al-Bilad daily also said that consumers complaining about high oil prices should take into consideration the losses incurred by members of the Organisation of the Petroleum Exporting Countries when crude prices hit their lowest level in 12 years in 1998.

``OPEC countries are entitled to take whatever decisions they see suitable and which would primarily preserve the principle of continuous cooperation to prevent any deviation that may lead to a production war and a price war...,'' the daily said in an editorial carried by the official Saudi Press Agency.

``God willing, this won't happen especially after producers realised the extent of the damages and threats that occur in the absence of coordination,'' the newspaper said.

OPEC and other key oil producers are coming under mounting pressure to raise output as world stockpiles fall and key consumers like the United States voice concern over high prices, which are hovering around nine-year highs.

OPEC oil ministers are due to meet in Vienna on March 27 to decide whether to extend output curbs due to expire in March, amid signs of a division between members of the cartel.

The United States is preparing to launch a round of energy diplomacy to persuade OPEC and other major producers to pump more crude or face a backlash which might include Washington releasing oil from its emergency stockpile.

``We hope those who see that oil prices have reached a high level lately against their interest, would realise well the extent of the economic losses that OPEC countries suffered when prices reached their lowest levels...,'' al-Bilad said.

Al-Yawm, another Saudi daily, said in an editorial that the kingdom's policy was to maintain balance between supply and demand in a way ``that would preserve the stability of the oil market, prevent price fluctuations and provide the Saudi economy with positive growth.''

The newspaper stressed the importance of adhering to any ceiling decided by OPEC, adding that compliance with the cartel's decision would help absorb the stockpile surplus and bolster prices.

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-- Gordon (g_gecko_69@hotmail.com), February 20, 2000

Answers

To the top.

-- Rachel Gibson (rgibson@hotmail.com), February 20, 2000.

Nice job with the scenarios, Gordon. They seem plausible to me.

What do you think the economic consequences would be of the two situations which you did not discuss (upping production moderately and upping production considerably)? Recession? Mild? or just market correction with a "soft landing"?

Thanx for your thoughts.

Also, they were asking for your sage input on the Oil Talk board (on the tech analysis thread), in case you're interested in sharing there as well.

-- Chuck (cestin@aa.net), February 20, 2000.

"The Arabic-language al-Bilad daily also said that consumers complaining about high oil prices should take into consideration the losses incurred by members of the Organisation of the Petroleum Exporting Countries when crude prices hit their lowest level in 12 years in 1998."

Those sheet-heads complaining about OUR "complaining" "should take into consideration the LIVES given by AMERICANS to save their sandy asses during DS.

Next time they get their petro-asses in a sling, let THEM do the dying.

Time for the US to make nice to Saddam.

-- Charles Underwood Farley (c@u.f), February 20, 2000.

Gordon,

Dick Moody has a thread over at Downstreamers Petroleum Forum where your name has come up and I thought you might want to check it out, so heres the link:

http://pub3.ezboard.com/fdownstreamventures petroleummarkets.showMessage?topicID=514.topic

Thanks for your latest commentary, I never miss on reading your postings.

-- Zdude (zdude777@hotmail .com), February 20, 2000.

This just reinforces the viewpoint that the US has lost control of its energy sources. The US has been fooling itself that the era of unlimited, cheap oil will be available forever, well it just has to be, if the US is to keep enjoying our status. The oil suppliers are starting to realize who holds the remaining barrels, and it ain't the US. The US squandered a chance to develop non-oil sources of energy and opted instead for the cheap and quick way out. Our whole economy, and life style is based on cheap gas: imagine trying to commute while paying $2 or $3 gas in a SUV. This going to be very deflationary, UNLESS the Fed creates enough credit to make the dollar nearless worthless. This is what they did in the 1970's oil crisis but OPEC is a lot smarter this time.

-- Sure M. Hopeful (Hopeful@future.com), February 20, 2000.

Gordon:

Thanks for your post....always read your info. Here's a tip for you: you will probably get a lot more responses if you use a title that actually indicates oil/fuel/energy. This title indicates some type of religious topic; which I avoided entirely because I usually only look at the "New Answers" section and did not realize that you had posted this.

Again, thanks for your input!

Do you have any in-country contacts that would give you info on production,transportation,ports, etc ....without compromising the identity of those contacts? Are they able to produce more if they wanted to at this point?

-- jeanne (jeanne@hurry.now), February 20, 2000.