40 years later, OPEC has world running on empty

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Fair use for educational/research purposes only!

40 years later, OPEC has world running on empty September 6, 2000 Web posted at: 8:00 PM EDT (0000 GMT)

LONDON (Reuters) -- Forty years ago, in a time of oil glut, American petroleum giant Standard Oil announced a cut in the posted price of its Middle East crude exports.

For the producing countries, whose resources Standard and the other oil majors controlled, it was the last straw.

Representatives from Saudi Arabia, Iraq, Iran, Venezuela and Kuwait, the source of 80 percent of the world's petroleum exports, met in Baghdad on Sept. 10, 1960, to form the Organization of the Petroleum Exporting Countries.

But internal rivalries, surplus supplies, U.S. import quotas and the oil majors' tight grip on production left OPEC on the sidelines for much of its first decade.

"At the start OPEC was not even recognized by the oil companies," recalled former Saudi oil minister Sheik Zaki Yamani. "But things changed and soon they knew who we were."

Now, during the latest oil shortage to punctuate OPEC's feast-or-famine history, the cartel is reminding the world of an original objective: to make the West pay more for oil. At $30 a barrel, prices in real terms are still short of the $70 peak OPEC engineered at the end of its 1970s heyday, in the aftermath of the 1979 Iranian revolution.

While most thought OPEC had long said goodbye to the days of confrontation, some in the cartel are enjoying the encore.

High prices and high profile A mixture of old-fashioned political posturing from Venezuela and the fear of provoking another price slump mean OPEC ministers who meet this Sunday are unlikely to do much to prevent a winter of discontent for oil consumers.

Venezuela, led by President Hugo Chavez, a former paratrooper, wants high prices and a high profile when it hosts a summit for cartel heads of state at the end of this month. With a fuel price revolt in France and official complaints from the United States, the European Union and Japan ringing in his ears, Chavez appears to have got his way.

Though economists are fretting that rocketing fuel costs could spark another 1970s-style recession, the world is far better prepared to manage another OPEC crisis than in the '70s.

Vowing not to be caught out again, the West invested heavily in its own oil. The multinationals, sent packing by OPEC nationalization, invented new technologies to slash the cost of finding crude and pumped oil from regions like the North Sea.

Power generators in nations without oil turned nuclear and then increasingly to cleaner fuels like natural gas. Consumers also became more efficient and high taxes in the industrialized world, with the exception of the United States, have replaced high prices as the incentive for efficiency gains.

Oil prices, set first by the multinationals and then by OPEC, have long since fallen under the spell of the market. While OPEC controls the spigots, flickering futures screens and financial derivatives dictate market direction.

OPEC says taxes and excessive market speculation are to blame for today's high prices. In Europe up to 80 percent of the cost of fuel is tax. British motorists pay $190 a barrel at the pump for gas that fetches $40 a barrel at the refinery gate.

OPEC Secretary-General Rilwanu Lukman, asked if the cartel would avoid bringing motorists to tears, said: "They should weep quietly at petrol stations but not because of OPEC. They should cry out because their government taxes oil too heavily."

Price boom won't last Petroleum product inventories at record lows mean OPEC probably has lost control over the market for the course of the coming northern hemisphere winter. High prices will endure into 2001, but just as the glut and 25-year price lows of 1998 eventually led to the current spike, so high values inevitably will lead to another slump soon.

Yamani says OPEC's current tactics are bound to backfire. "Increasing the price of oil in the 1970s was a serious mistake. OPEC used to have 70 percent of the world's production and it fell to 30 percent. The same mistakes are being made."

Most in the industry agree that, while prices will stay higher at least for the next six months, it is likely to be another case for OPEC of short-term gain, long-term pain.

Shell chief executive Mark Moody-Stuart agrees with Yamani. New production technologies that mean most crude reserves are accessible at $12 a barrel or less will bring prices slumping sooner rather than later.

"When OPEC started cutting output in 1998 they were hoping for $18, then the target moved to $21, then to $25 and then $28. Now we're at $30 they're saying, this isn't so bad after all. But it won't last," he said.

North Sea production costs, the world's first major deepwater province, have fallen from $25 a barrel at current prices to $10 and could drop by half again over the next decade.

"The technological cost of producing oil is steadily going down and as it goes down more and more potential oil is drawn in," said Moody-Stuart

High prices and high profile

Price boom won't last

--------------------------------------------------------------------------------

LONDON (Reuters) -- Forty years ago, in a time of oil glut, American petroleum giant Standard Oil announced a cut in the posted price of its Middle East crude exports.

For the producing countries, whose resources Standard and the other oil majors controlled, it was the last straw.

Representatives from Saudi Arabia, Iraq, Iran, Venezuela and Kuwait, the source of 80 percent of the world's petroleum exports, met in Baghdad on Sept. 10, 1960, to form the Organization of the Petroleum Exporting Countries.

PRICING GASOLINE Click here to see how production costs affect the price of gasoline OIL PRODUCTION Click here to learn about the world's leading oil producers.

-------------------------------------------------------------------------------- Flash is needed to view both of these features. If you don't have it, get it here But internal rivalries, surplus supplies, U.S. import quotas and the oil majors' tight grip on production left OPEC on the sidelines for much of its first decade.

"At the start OPEC was not even recognized by the oil companies," recalled former Saudi oil minister Sheik Zaki Yamani. "But things changed and soon they knew who we were."

Now, during the latest oil shortage to punctuate OPEC's feast-or-famine history, the cartel is reminding the world of an original objective: to make the West pay more for oil. At $30 a barrel, prices in real terms are still short of the $70 peak OPEC engineered at the end of its 1970s heyday, in the aftermath of the 1979 Iranian revolution.

While most thought OPEC had long said goodbye to the days of confrontation, some in the cartel are enjoying the encore.

High prices and high profile A mixture of old-fashioned political posturing from Venezuela and the fear of provoking another price slump mean OPEC ministers who meet this Sunday are unlikely to do much to prevent a winter of discontent for oil consumers.

Venezuela, led by President Hugo Chavez, a former paratrooper, wants high prices and a high profile when it hosts a summit for cartel heads of state at the end of this month. With a fuel price revolt in France and official complaints from the United States, the European Union and Japan ringing in his ears, Chavez appears to have got his way.

Though economists are fretting that rocketing fuel costs could spark another 1970s-style recession, the world is far better prepared to manage another OPEC crisis than in the '70s.

Vowing not to be caught out again, the West invested heavily in its own oil. The multinationals, sent packing by OPEC nationalization, invented new technologies to slash the cost of finding crude and pumped oil from regions like the North Sea.

Power generators in nations without oil turned nuclear and then increasingly to cleaner fuels like natural gas. Consumers also became more efficient and high taxes in the industrialized world, with the exception of the United States, have replaced high prices as the incentive for efficiency gains.

Oil prices, set first by the multinationals and then by OPEC, have long since fallen under the spell of the market. While OPEC controls the spigots, flickering futures screens and financial derivatives dictate market direction.

OPEC says taxes and excessive market speculation are to blame for today's high prices. In Europe up to 80 percent of the cost of fuel is tax. British motorists pay $190 a barrel at the pump for gas that fetches $40 a barrel at the refinery gate.

OPEC Secretary-General Rilwanu Lukman, asked if the cartel would avoid bringing motorists to tears, said: "They should weep quietly at petrol stations but not because of OPEC. They should cry out because their government taxes oil too heavily."

Price boom won't last Petroleum product inventories at record lows mean OPEC probably has lost control over the market for the course of the coming northern hemisphere winter. High prices will endure into 2001, but just as the glut and 25-year price lows of 1998 eventually led to the current spike, so high values inevitably will lead to another slump soon.

Yamani says OPEC's current tactics are bound to backfire. "Increasing the price of oil in the 1970s was a serious mistake. OPEC used to have 70 percent of the world's production and it fell to 30 percent. The same mistakes are being made."

Most in the industry agree that, while prices will stay higher at least for the next six months, it is likely to be another case for OPEC of short-term gain, long-term pain.

Shell chief executive Mark Moody-Stuart agrees with Yamani. New production technologies that mean most crude reserves are accessible at $12 a barrel or less will bring prices slumping sooner rather than later.

"When OPEC started cutting output in 1998 they were hoping for $18, then the target moved to $21, then to $25 and then $28. Now we're at $30 they're saying, this isn't so bad after all. But it won't last," he said.

North Sea production costs, the world's first major deepwater province, have fallen from $25 a barrel at current prices to $10 and could drop by half again over the next decade.

"The technological cost of producing oil is steadily going down and as it goes down more and more potential oil is drawn in," said Moody-Stuart

http://www.cnn.com/2000/WORLD/meast/09/06/energy.opec.anniv.reut/index.html

-- Martin Thompson (mthom1927@aol.com), September 07, 2000

Answers

This is a nice rosey report--about dropping costs of recovery. But, completely overlooked is the fact that many countries oil fields are running down, or even dry. So, all the cost savings in the world will do no good if there is no oil at the bottom of the drill bit.

-- JackW (jpayne@webtv.net), September 07, 2000.

Moderation questions? read the FAQ