If Inflation Keeps Eating Up The Dollar, OPEC Will Deliberately Cut Production So That Oil Prices Increase Accordingly
So, some of you might be thinking, “OPEC is totally rolling in the moolah!”, seeing that they account for 40% of the world’s oil production. I guess it would make sense because the U.S. Energy Dept. estimates that OPEC members earned $675 billion from oil exports in 2007, a 10% increase from the prior year. Heck yeah that’s a lot of moolah being made!
So if anyone would be mad at this point, with the drop in consumption of oil, it would probably be OPEC right? Sure enough! They are furious because the 15% drop in the U.S. Dollar over the past year is denting their revenue stream! Especially since it seems to be triggering consumers directly at the pump, we aren’t buying like we should… okay oh great powerful OPEC!
To add another point, the Energy Information Administration expects that OPEC could see $850 billion in net oil export revenue in 2008. Thats a 26% increase from 2007. Man, what I would give to be in the oil business right? 
You know what I think? OPEC is wondering “what if the U.S. dollar drops another 15%?” The easiest way make up for the dollar loss is to simply cut production so oil prices meat that fall; the prices will go up 15%.
Such a move could lift oil to about $105 per barrel! AND IT HAS!!!
Now, its just my personal opinion but if I was an OPEC oil prince, who loves to shop in Europe, wanting a little extra cash in my pocket to carry around for fun, I might get that money by cutting production eough so that prices go up 30%. That would put the price of a barrel of crude at around $119.
“But, but,” some say breathlessly, “that will cripple the global economy!”
“Yeah, yeah” say OPEC members, as they lift their chins up and turn their head.
They’ve been hearing this same sad song as oil rose above $50 … $60 … $70 bucks! Yet we keep on truckling along singing our song and Americans keep driving their Escalades!
America is the world’s largest consumer of oil, guzzling more than 7.5 billion barrels per year of that black gold! We import more than half the oil we use, and that amount is rising.
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It’s also hard for OPEC to take us seriously when we do little to curb our own voracious thirst for oil.
In the Netherlands, it just became $28,000 more expensive to buy a HUMMER, thanks to that country’s new “gas guzzler” tax.
Can you imagine the reaction if the U.S. government tried to do the same thing? Oh snap! my Hummer is a worthless piece of dirt! I’m mean seriously, we all have hummers, well, most of us or the equivalent of one in terms of gas mileage!
The US people would revolt against any sort of law passing. They would march the streets, they would break out and segregate into factions and havoc! The whole US would break out into Anarchy! Well, probably not that but man! Some folks would go Bruce Lee and Chuck Norris on some of those politician butts!
So here are some other reasons to expect oil to continue to rise:
So, don’t get mad at me or anything but the sad part of it all is that the OPEC wouldn’t even have to actually cut production to rise prices in oil! Some of the reasons:
- Mexico expects production at its giant Cantarell field to drop another 16% (200,000 barrels per day) this year, after falling 16% last year.
- Over the past three years, production at Cantarell, Mexico’s largest oil field and the third largest oil field in the world, has dropped by 40%! Within just a few years, Mexico may have to start IMPORTING oil.
- We are seeing supply disruptions from the frozen oil sands of Canada to the strife-torn backwaters of Nigeria and beyond.
- And millions of people in China and India are getting behind the wheel of gas-guzzling cars for the first time. They’ll use every barrel of oil that we don’t!
So why has oil pulled back in the recent past? The U.S. uses 25% of the world’s oil, and investors fear that the U.S. economy is in recession. Therefore, they think we’ll use less oil.
But hold on …
China’s oil imports are expected to jump from 3.5 million barrels per day (bpd) in 2006 to a stunning 13 million bpd in 2030. Do you really think oil prices will stay down? Of course not!
Folks, we are no longer the only great nation of consumers. We have some competition!
April 23rd, 2008 at 4:19 am
Burns me up, with our vast oil reserves–in Alaska, North Dakota, and the 85% of the Continental shelf the environmentalists won’t let us touch–there’s no reason we could not become largely self-sustaining within the next 10 years. And, in the process, if we went after it aggressively and built enough refineries to accomodate along the way, the price would come down somewhat, and be more manageable.
As it is we are headed toward a severe recession because of the oil price (as well as the sub-prime mortgage crisis). I only can hope this stops at a severe recession, and does not develop into a full scale depression. I went through the Great Depression of the 1930s, and certainly do not look forward to the horror of a second Great Depressionl in my life time.