Speculating on Oil & War
A minor speculation, offered for amusement, to be tested this coming Thursday when OPEC meets.
1. In the past weeks several OPEC oil ministers told the press that cuts in oil production will be agreed to at the meeting, to prop prices in the face of the early autumn’s precipitous and surprising drop.
(“Surprising” (i) heading into winter and (ii) given tense mideast affairs. Some wags along the way suggested that the price drop was due to the Oil Mafia ( the big four companies that control oceanic distribution and many pipelines) loosening distribution channels in an effort to encourage Americans to vote Republican in November. Along “the economy, stupid!” lines. Cheaper gas prices leading to a vote for the status quo.)
(Same or similar wags had earlier in the year speculated that the Oil Mafia was squeezing distribution channels in an effort to keep oil at $70 a barrel — at which price the vast oil shale deposits of Colorado’s western slope become economically viable sources of crude.)
2. Last weekend Cheney flew unannounced to Saudi Arabia, met for two hours with King Abdullah, then flew back to wherever it is the Vice President sits in the Age of Terror.
My speculative surmise at the time: Dick and Abdullah talked turkey about the quickly evolving and dissolving mideast and Washington scenes — and in particular about an imminent Israeli attack on Iran.
3. A. Then, this past Thursday (Pearl Harbor Day), the Saudi ambassador to the U.S. suddenly spoke up on the price of oil, contradicting not only brethren OPECs but his own oil minister. The ambassador told the press that current prices — $60ish (they’d risen from the low 50s since the elections) — were acceptable and that the “consumer economies” should not be disrupted.
Ie, OPEC should NOT cut production at the upcoming meeting. See here and here for more.
3B. If indeed an attack on Iran is pending, it would be sensible for Cheney (last Neocon standing in Bushworld) to clue the Saudis in — and to ask that rather than ratchet production down they prepare to pump it up. To compensate for disruptions of Iranian and, who knows, perhaps Russian supply.
(Iran sends the lion-share of its oil east to China. Russia heats a good deal of Europe with gas and is the third (?) biggest holder of oil reserves. Both China and Russia supply Iran with fancy weapons and moral support, most recently by inviting Iran as a “special observer” to the annual Shanghai Cooperation Organization summer summit. The SCO is often referred to as “the asian NATO” and one of its chief tasks has been to push back American intrusion into the Istans of central Asia since the fall of the Soviet Union.)
3C. It might seem odd that Saudi Arabia’s US ambassador would call in the press to talk oil production up. But it makes sense, in the scenario we contemplate, because the Saudi OIL MINISTER, Naimi, is perhaps the world’s most eminent Oil Man, a life-long employee since childhood of Aramco, well known to refuse to suffer fools gladly — and following the odd comments of his ambassador Naimi repeated for the press his position that production should be cut by a million barrels a day to work off a glut. (And note that in speeches across the past several post-9/11 years Naimi has routinely blamed high oil prices on the Oil Mafia — ie, on distribution choke-ups, rather than true lack of supply.)
4. And then on Friday (yesterday), The Wall Street Journal of all people published a piece asserting that there should and would be no OPEC production cuts, citing anonymous “cartel officials”:
OPEC Unlikely to Cut Production Further: WSJ
SAN FRANCISCO (MarketWatch) — With oil prices back above $60 a barrel and the global economy slowing, OPEC is likely to refrain from further tightening its oil spigots when cartel ministers meet next week, according to a media report Friday. Barring big moves in crude-oil prices in the next few days, OPEC probably won’t call for a reduction in output when cartel ministers meet Thursday in Abuja, Nigeria, The Wall Street Journal reported in its online edition, citing unnamed cartel officials.”
This WSJ story had the markets abuzz Friday, and the price of oil fell, having run up all during the week in anticipation of the OPEC meeting and in reaction to the heat in mideast capitals.
5. And now today (Saturday) the OPEC President and several oil ministers have come out rather annoyed with the Wall Street Journal to repeat their views that production should indeed be cut, somewhere between 0.5 and 1.5 million bbls.
6. AND SO
It looks like the Americans, perhaps indeed first thru Cheney in his visit to Abdullah last weekend, were trying to get the Saudis to sway OPEC away from production cuts. Pushing the poor Washington ambassador out there into the klieg lights. But the oil ministers have reasserted themselves and on Monday traders will again be expecting production cuts and thus pressure for higher prices.
So. Let’s see on Thursday who won this little battle.
If production is not cut, prices will fall back below $60, and I’ll tally another Occult Signal of an impending attack on Iran, which I imagine will send oil shooting toward $100 a barrel and perhaps engulf the world in flames.
You can check prices on oil, orange juice, pork bellies and the like (slightly delayed) here and get nice charts for same here.
POST SCRIPT
Well, look at this. Hot off the wires on Sunday:
Iran’s oil man saying production cuts should be substantial enough to push oil back to $70 as floor.
And from Dubai, China’s Assistant Sec’y of Foreign Affairs reaching out for a special relationship with OPEC, expressing concern for the stability of the oil flow and speaking of Iraq in particular:
China Wants to Start Direct Negotiations With OPEC
Associated Press 12/09/2006
DUBAI, United Arab Emirates — China wants to start direct negotiations with OPEC to secure a stable oil supply and an equitable share of the oil market, a top official said here, in comments that underline the Chinese economy’s rapidly growing energy needs.
Zhai Jun, China’s assistant minister of foreign affairs, told conference participants in Dubai that his country was trying to develop “a negotiating mechanism with OPEC.”
“Only through this can we maintain security and stability of our oil imports,” Zhai said in a speech to the Arab Strategy Forum here.
Soaring demand for oil in rapidly industrializing China has been blamed as one of the chief causes for oil prices that have spiraled higher over the past two years.
Zhai, speaking in Chinese, appeared to refer to another cause for higher prices — instability in oil producing countries like Iraq and Nigeria — when he said China wants to step up efforts to end strife that destabilized the oil marketplace.
“We need to eliminate these hot spot issues,” he said.
China is an increasingly big consumer of raw materials and has been seeking a greater voice in pricing of several commodities. The country, which Zhai said imports six percent of the crude traded globally, has been setting up strategic oil reserves and aggressively seeking new suppliers in Africa and South America to help diversify its crude supply. Zhai termed it the “global race for energy.”
“China’s influence is growing in the Arab world,” he said.
He said the Asian giant was opening its energy sector to outside investment and looking to cooperate with foreign partners across its oil sector. Zhai said the country was looking for more formal ties with the Organization of Petroleum Exporting Countries, but didn’t elaborate.
“Currently we’re making preparations to establish a dialogue mechanism with oil producers,” the Chinese diplomat said. “We want to participate as much as possible in some of the big decision processes on the world stage.”
During a visit by OPEC president Sheik Ahmad Fahad Al Ahmad Al-Sabah to China last year, the two sides discussed “institutionalizing” a dialogue, acknowledging China’s increasing importance as an importer of oil and gas.
China imported 136 million tons of crude in 2005 and produced 181 million. The Arab Strategy Forum brings together business, academic and political leaders from around the world to discuss development and political issues of global interest.
ed says:
So. Saudi Oil Minister Naimi came to Dubai Wednesday night having changed his tune, suggesting (in line with his D.C. ambassador the week before) that production levels perhaps were fine for now. The result of the meeting the next day was an “agreement” to cut production at the February meeting if circumstances seemed to warrant.
And so the oilthink, across the five days preceding the meeting, conformed itself to the political alignments, with Iran sticking to its calls for cuts, and almost all the other producers coming to see things the American way. (Oil is not a commodity. It is a geopolitical tool. Book of Daniel Singer.)
And note that baby Bush simultaneously punted on the “Gee, what to do about Iraq? puzzler — joining OPEC in putting off the hard question until “early next year.” Perhaps by then Israel (with or without direct US aid) will have attacked Iran, leaving the world in flames, and each question moot.
December 30th, 2006 at 8:25 pm