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Page added on July 22, 2018

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Imagine a World Without OPEC

Imagine a world without OPEC. This is what the sponsors of legislation introduced in both houses of Congress seem to want. Versions of the “No Oil Producing and Exporting Cartels Act,” or the NOPEC bill, are working their way through the Senate and the House of Representatives, and are likely to find much more support from the White House than they have in the past – Presidents George W. Bush and Barack Obama both threatened to veto similar legislation.

The bill would allow U.S. antitrust laws to be enforced against OPEC members whom the sponsors say have “used production quotas to keep oil prices artificially high.” This is a popular argument in a country where the right to cheap gasoline might have been written into the constitution alongside the right to bear arms, had that document been drafted a couple of hundred years later than it was. But we need to look a bit further than the gas station forecourt. And when we do, we will not be looking upon the promised land.

OPEC introduced production quotas in 1982, to allocate output between member countries faced with a third year of falling global oil demand and rising supply from countries like Mexico and India, which left them with as much as 12 million barrels a day of spare capacity. Saudi Arabia had already reduced its oil production by 30 percent and, just as in 2016, was no longer prepared to shoulder alone the burden of balancing oil supply and demand.

Making Space

OPEC supply management in the 1980s and 1990s made room for non-OPEC output growth

Sources: BP, Bloomberg

What would have happened if OPEC hadn’t got together? Sure, drivers in America and elsewhere would have enjoyed cheaper gasoline for a while. But probably not for too long. Even with the group’s supply management, oil prices reached a low of around $14 a barrel in 1986, according to data from BP Plc.

How much further would they have fallen if member nations had continued to produce without restraint? Certainly low enough to make production uneconomic in Alaska, the Gulf of Mexico, the North Sea, Western Canada and a host of other oil provinces that have become mainstays of non-OPEC production. The group’s supply management created the space for 33 billion barrels of additional non-OPEC production in the 20 years it took for them to get their supply back to the level it had been in 1978.

But nearly 40 years later, the world’s a different place. Here is what would happen if the NOPEC bill became law and the group failed to protect itself from its reach. This would be the world without OPEC.

There could be no collective action to try to balance oil supply and demand. Saudi Arabia has said repeatedly that it wouldn’t balance the market on its own and support high-cost oil producers.

You don’t have to search too far to see what that means in practice. Just cast your mind back four years, during the thick of OPEC’s pump-at-will policy. Oil prices fell to $26 a barrel – great for drivers, but not so good for the U.S. oil patch, or for investment in future production capacity needed to offset natural decline in existing fields.

Careful What You Wish For

The ending of Saudi Arabia’s output restraint had a devastating impact on the U.S. oil patch

Sources: Bloomberg, Baker Hughes

Note: Both data series are relative to August 2014, when there were 1,575 active oil rigs in the U.S. and Saudi Arabia was producing 9.6 million barrels a day.

As Saudi Arabia raised its production, the number of rigs drilling for oil in the U.S. fell by 80 percent. The only region in the world where drilling didn’t drop was the Middle East. It wasn’t long before there were calls, including from candidate Trump’s energy adviser, for OPEC to act to reduce supply and rescue prices that were too low for the American shale industry.

If the NOPEC bill becomes law, there’s little incentive for anyone to hold spare production capacity. In recent decades this willingness has been an important safety valve to relieve the pressure of supply disruptions. A study by the King Abdullah Petroleum Studies and Research Center, initiated in 2016, assessed the annual economic benefit to the global economy of OPEC’s spare production capacity at between $170 billion and $200 billion through the reduction in price volatility in times of supply disruption. Without that buffer, oil prices could have spiked above $300 a barrel during the Libyan revolution, the study found.

The biggest consumer-held oil stockpile – the U.S. Strategic Petroleum Reserve – could not have coped with the loss of supply that accompanied Iraq’s 1990 invasion of Kuwait, and it would have struggled to offset the loss of Libyan production in 2011 for more than five months. The loss of supply that may result from Trump’s revival of sanctions against Iran would exceed the reserve’s ability to deliver within four months.

Insufficient Petroleum Reserve

After three months the SPR could not have coped with the loss of oil supply from Iraq’s 1990 invasion of Kuwait. After four months, it won’t be able to cope with losses from sanctions on Iran

Sources: Bloomberg, EIA

It seems perverse to be attacking President Trump’s ally against Iran and the world’s only source of spare capacity, while simultaneously initiating the biggest supply disruption in nearly 30 years. But attacking allies and destabilizing markets seems to be a favorite pastime in Washington these days.

bloomberg



33 Comments on "Imagine a World Without OPEC"

  1. "Lucifer" on Sun, 22nd Jul 2018 3:06 pm 

    Now imagine a world without humans, well a world with a hell of a lot less humans anyway, that sounds like paradise to me.

  2. onlooker on Sun, 22nd Jul 2018 3:48 pm 

    Imagine a world where the ARCTIC is ice free. Soon, you won’t have to imagine —
    Climate Change and the Giant Iceberg Off Greenland’s Shore
    https://www.newyorker.com/news/daily-comment/climate-change-and-the-giant-iceberg-off-greenlands-shore

  3. MASTERMIND on Sun, 22nd Jul 2018 4:33 pm 

    The easy oil is gone

    Oil discoveries peaked in the 1960’s.

    Every year since 1984 oil consumption has exceeded oil discovery.

    In 2017 oil discoveries were about 7 billion barrels; consumption was about 35 billion barrels

    Of the world’s 20 largest oil fields, 18 were discovered 1917-1968; 2 in the 1970’s; 0 since.

    https://imgur.com/a/6dEDt

  4. Duncan Idaho on Sun, 22nd Jul 2018 4:40 pm 

    Of the world’s 20 largest oil fields, 18 were discovered 1917-1968; 2 in the 1970’s;
    0 since.

    The last elephant was in Kazakstan in 2000.

    1) Tengiz; 2) Karachaganak; and 3) Kashagan in the Caspian Sea.

    It has been a tough gig—–

  5. Twocats on Sun, 22nd Jul 2018 4:45 pm 

    Now inagine a world where Koch spawned mutants take control of the most powerful empire in human history. This should end well.

    The 2008 crises was handled in an u precedented worldwide coordination. And Cornucopians are like “Steph Curry swish”. Now you’re about to see the non-coordinated crises management.

  6. MASTERMIND on Sun, 22nd Jul 2018 4:50 pm 

    Israel just told the Russians ‘Fuck You, we will bomb the Iranians and Syrians Anyway’

    The jews bend Putin over like their bitch!

    LMFAO!

  7. BobInget on Sun, 22nd Jul 2018 5:18 pm 

    While the US (Chevron) and Russia (Rosneft)
    are trying to keep Venezuelan crude flowing, repercussions of LOSING 15% of the worlds production, in a $70 world, no less, are far greater than ‘experts’ admit.

    Example: Poor nations on the brink simply fall apart when the cheap oil rug gets pulled away.
    Nicaragua, a prime example in our neighborhood.

    OPEC died three years ago when KSA went back on its cartel responsibility, increasing production instead of cutting. We are just now finding something black to wear.

    Instead of helping non Muslim member Venezuela, KSA , USA, failed again.
    OK, that’s #1.

    #2 Saudi Arabia with US help after 3 years, continue a genocide in Yemen, sixth year in Syria, Mark me. We, USA, KSA will not recover from this crazy cluster F.

    KSA or the US will never recover their leadership roles. Saudi Arabia in the Muslim world. The US
    as the leading democratic example.

    #3 Re up-ing sanctions on Iran drives them directly into the hands of China and trading oil in yuan. China is importing far more oil than is apparent.

    Once a majority of oil is traded in yuan, printing USD to compete for imports, will weaken USD as
    world’s exchange currency. Once the bid goes over $140, the dam is broken.

    #4) Trump’s ‘War on Trade’ combined with USD failure may make Russia great again. Will it help
    feed the world or keep us cooler in summer?

  8. Cloggie on Sun, 22nd Jul 2018 5:28 pm 

    Battle over Syria:

    Russia-USA/Israel 1-0

    Time for WW3: Eurasia-Anglosphere

    A hard Brexit could be just the suitable apetizer, escalation upon escalation. War could even start in Europe, over Gibraltar, over blockades. GBP 39B is a lot of money.

    Rember the warm Summer of 1914, nobody had a clue what was about to happen, other than a few insiders/plotters in London, Paris and Petersburg. The British navy paid a friendly visit to Germany, everything seemed to be OK…

  9. MASTERMIND on Sun, 22nd Jul 2018 5:35 pm 

    FEMA-style tents as homeless shelters? Maybe, say some who believe we have a ‘public health disaster’

    https://www.seattletimes.com/seattle-news/homeless/board-of-health-members-concerned-with-lack-of-action-on-homelessness-emergency/

  10. Cloggie on Sun, 22nd Jul 2018 6:05 pm 

    “FEMA-style tents as homeless shelters? Maybe, say some who believe we have a ‘public health disaster’”

    Perhaps because of this?

    https://www.infowars.com/video-san-francisco-is-a-shthole/

    #DumpCalifornia

  11. MASTERMIND on Sun, 22nd Jul 2018 6:17 pm 

    Clogg

    San Fran has one of the worlds highest per capita incomes..There median house start out at 1.5 million..go to Kentucky or Alabama if you want to see filth..

  12. Sissyfuss on Sun, 22nd Jul 2018 7:30 pm 

    But the tents are so much more fashionable than those tacky cardboard units on the hillsides of South American cities.

  13. Makati1 on Sun, 22nd Jul 2018 8:16 pm 

    MM: San Francisco today…

    “‘I come from a third world country and it is not as bad as this’: San Francisco’s homelessness and opioid crises drive away business, as $40m convention cancels because members are too SCARED to walk alone”

    http://www.dailymail.co.uk/news/article-5914425/Big-convention-cancels-meeting-San-Francisco-citys-problems-homelessness-drug.html

    “More human poop on San Francisco sidewalks ‘than I’ve ever seen,’ new mayor says”

    https://www.fresnobee.com/news/nation-world/national/article214962990.html

    “San Francisco’s public defecation problem really stinks”

    https://boingboing.net/2018/07/17/san-franciscos-public-defeca.html

    Slip slidin’…

  14. Institute for Irrational Optimism on Mon, 23rd Jul 2018 8:28 am 

    This bill sounds AWESOME; really hope those clowns in Washington can push it through this time.

    PAIF (Promote American Ignorance Forever)

  15. joe on Mon, 23rd Jul 2018 10:01 am 

    If Saudi want to be a publicly traded company the feild of play has to be level. Its ok to manipulate the prices when you are tyrannical monarchy. Its quite another if you want the full power of western markets to buy into your country and trust you. It almost proves the point about western soft power. Drive carefully women of Saudi Arabia…….
    The world Obama built being destroyed one brick at a time.

  16. joe on Mon, 23rd Jul 2018 10:02 am 

    Also please sombody, please, anybody, topple the evil regime of headchopper pagan black stone kissers.

  17. Anonymouse1 on Mon, 23rd Jul 2018 2:12 pm 

    Wow are amerikans ever dumb. Not that this exactly news or anything. So these dumb-asses want to get ‘rid’ of ‘OPEC’, a dead-letter Org that the uS and Israel basically control, because they ‘think’ it acts to set prices ‘artificially high’.

    *Define ‘artificially high’.

    Ok, but did anyone inform these retards that price of oil is *not* set by something called ‘OPEC’, but mainly by traders, speculators and other globalist operators, that almost all work out of Jew York City and London? You know, the two places where oil contracts are actually set? Put a little different, the price of oil is a global price, and low prices for the commodity, would actually *hurt* the amerikan oil cartel. The uS oil cartel has no issue with high prices. Amerikan conumsers are heavily subsidized and the industry, and end-users in amerika only pay token taxes, so, again, what do they care? They do care if the price of a barrel tanks though, they care a lot about things like that. The price of a gallon of gas in flyover amerika? Not so much.

    Besides, when prices are high, the uS media and its muppets *always* blame ‘OPEC’ even though the org has been a dead-letter for decades and is nowhere near as omnipotent or important as they would have you believe.

    But as a whipping boy..err….’cartel’, priceless.

    If this stupid NOPEC plan of theirs did come about, then uS propaganda would have to work really hard to come up with a new scapegoat to blame the high cost of oil on, wouldn’t they? Or maybe the idea is with ‘OPEC’ out of the way, it would be easier to justify an outright attack on countries like Iran and Venezuela? All in the name of keeping oil prices ‘low’ of course.

    Q: when prices where low, why wasn’t the uS singing ‘OPEC’s praises for that? If ‘OPEC’ is to blame for high prices, shouldn’t they at least get all the credit when prices are low? Just wondering….

  18. Davy on Mon, 23rd Jul 2018 2:25 pm 

    “Amerikan conumsers are heavily subsidized”

    References please for that wild assertion?

  19. JuanP on Mon, 23rd Jul 2018 2:47 pm 

    Davy “References please for that wild assertion?”

    Nobody has to give you references or anything else. And his assertion is not wild, it is the truth. The American consumers have been benefitting fro decades from the fact that the US Dollar is the world’s reserve currency. If you really are an economist then you must know that. References are not needed for facts that have been common knowledge to everyone for decades.

  20. Davy on Mon, 23rd Jul 2018 2:55 pm 

    Boney Juan, where did I say they were not subsidized? Your reserve currency assertion is in relation to other nations. Are we talking internal subsidies, external or both? Maybe we are considering since this is Asperger, the most extreme of anti-Americans, just his emotions running away with his reasoning skills. Why can’t the you let the lad speak or are you afraid he does not know?

  21. JuanP on Mon, 23rd Jul 2018 3:32 pm 

    Your last comment is nothing more than denialist BS, Davy. Your comments are becoming increasingly stupid, insane, and immature. You are making up shit like there is no tomorrow. You are saying stuff in one comment and denying it in the next. Can you at least agree with yourself? We know you disagree with everyone else already. Or are your multiple personalities getting confused?

  22. Davy on Mon, 23rd Jul 2018 3:43 pm 

    Translation: busted, Boney Juan has no newer to my question. Besides my question was to Asperger not Boney Juan the self admitted troll. So your comment is irrelevant.

    BTW I never said I was an economist. I had economic electives at the university. I have followed economic issues all my adult life.0

  23. Davy on Mon, 23rd Jul 2018 3:44 pm 

    Answer not newer

  24. JuanP on Mon, 23rd Jul 2018 4:11 pm 

    You are pathetic, Davy.

  25. Davy on Mon, 23rd Jul 2018 4:16 pm 

    Projecting, Boney Juan.

  26. Makati1 on Mon, 23rd Jul 2018 5:41 pm 

    Davy is so far gone, there is no mental recovery possible. All that can be done is to hope he stays in the Ozarks where he can only hurt stupid people like himself. Anyone can herd goats and spew bullshit on the internet with no references to back it up.

  27. Davy on Mon, 23rd Jul 2018 6:04 pm 

    Like clock work 3rd world awakes with an insult.

    Your gang got a good ass whoopin today 3rd world. Now it is your turn.

  28. JuanP on Mon, 23rd Jul 2018 6:17 pm 

    Delusional Davy “Your gang got a good ass whoopin today 3rd world. Now it is your turn.”

    Only in his sick, deluded mind, of course. Davy wasted the whole day fighting here, and made some new “friends”.

  29. Davy on Mon, 23rd Jul 2018 6:43 pm 

    Projecting your own ridiculousness and immaturity, boney juan. This has happened all day with your self admission of being a troll and your motivation to make this an uncomfortable place.

  30. Makati1 on Mon, 23rd Jul 2018 6:46 pm 

    If the internet went down for a day in Missouri, Davy would go postal. His whole life is on this forum almost 24/7. He could not possibly have a family or even a farm. Even if he owned a house, the lawn would need mowed, etc.

    PO is an addiction for him. A way to vent his frustrations by being a useless, worthless, uneducated, immature, piece of shit. He needs to feel in control, but he is laughed at constantly here because it is obvious that he is insane and out of control.

    If he could physically hurt us, he would do so. I see an “event” in his future that does not end well for him. Much deserved, I will add.

  31. Davy on Mon, 23rd Jul 2018 6:50 pm 

    projecting your own ridiculousness and immaturity 3rd world.

  32. Anonymouse1 on Mon, 23rd Jul 2018 7:30 pm 

    So the exceptionalturd imagines himself to be some of amateur ‘economist’, based on a couple of classes he attended back in what was it..the 1950’s?

    Elective = I showed up for enough classes to barely eek out a credit. And who knew 60 years later, you could use a class you barely attended to try to make yourself look book smert, on that new-fangled interweb thing.

    Juan of course, is quite correct. uS govt support for both the oil industry and end-users is what ‘we’ in the sane world, call an established fact. Since you know so little about the topic, why dont you put down your crack pipe and go find out for yourself?

    These lame and feeble attempts to discredit the ‘gang’ with your stupid demands for ‘references’ are not something you should hold your breath for. Or maybe you should. That would be funny.
    Hint: one generally asks for references because the person genuinely wants more information on the topic (that pretty well excludes you exceptionalturd). OR, if the person has made a dubious claim that likely cannot stand up to even cursory scrutiny. Since none of the ‘gang’ are in the habit of pulling stuff out of our asses on a whim (unlike you), and you definitely are NOT interested in learning anything that collides with your Israel\amerika first and only, tantrums, there is no point in your asking for them, period.

    dumbass.

  33. Makati1 on Mon, 23rd Jul 2018 7:36 pm 

    No Davy, just painting a picture of the Missouri goatherd with delusions of grandeur. A jew? Now that would be an interesting revelation and explain some things. lol

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