Posted on Thursday, September 11, 2008
5:32:00 PM by fontoon
Saudi Arabia walked out on OPEC yesterday, saying it would not honor the
cartel's production cut. It was tired of rants from Hugo Chavez of
Venezuela and the well-dressed oil minister from Iran. As the world's
largest crude exporter, the kingdom in the desert took its ball and went
home. As the Saudis left the building, the message was shockingly clear.
“Saudi Arabia will meet the market’s demand,” a senior
OPEC delegate told the New York Times. “We will see what the market
requires and we will not leave a customer without oil." OPEC will
still have lavish meetings and a nifty headquarters in Vienna, Austria, but
the Saudis have made certain the the organization has lost its teeth. Even
though the cartel argued that the sudden drop in crude was due to
"oversupply", OPEC's most powerful member knows that the drop may
only be temporary. Cold weather later this year could put pressure on
prices. So could a decision by Russia that it wants to "punish"
the U.S. and European Union for a time. That political battle is only at
its beginning. The downward pressure on oil got a second hand. Brazil has
confirmed another huge oil deposit to add to one it discovered off-shore
earlier this year. The first field uncovered by Petrobras has the promise
of being one of the largest in the world. The breadth of that deposit has
now expanded. OPEC needs the Saudis to have any credibility in terms of
pricing, supply, and the ongoing success of its bully pulpit. By failing to
keep its most critical member, it forfeits its leverage. OPEC has made no
announcement about any possibility of dissolving, but the process is
already over.
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