OPEC's lost sway over oil prices
This weekend's summit focused mostly on poor nations, climate change, and the euro vs. the dollar.
A rare meeting of the heads of state of the Organization of Petroleum Exporting Countries (OPEC) in Saudi Arabia this weekend was predictably focused on prices. But the price most often discussed wasn't the cost of oil, but rather the plummeting US dollar.Skip to next paragraph
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As oil hovers near $100 a barrel, it's causing global jitters. Some economists worry that price, which depending on whose math you use is either near or above an inflation-adjusted record, could push many world economies into recession.
But the organization that was created in 1960 to stabilize prices, today wields less clout than it once did over the cost of crude. The 13-nation cartel once controlled prices often by just talking about pumping more or less oil. But now its leaders say booming world demand – largely from India and China – and concern over a possible US attack on Iran are driving prices.
"OPEC is still a major force, but it's certainly far less influential that it was in the 70s or 80s," says Mustafa Alani, at the Gulf Research Center in Dubai, United Arab Emirates. "What we saw at this conference is that the leaders of OPEC were giving assurances that they'll do all they can to maintain the stability of the oil supply. But can they do it? We don't know."
OPEC's biggest producers – Saudi Arabia and its Gulf neighbors – say they'd like prices to be a little lower but are pumping near capacity now. After all, their currencies are pegged to the dollar, so a weak US economy hurts them, too. Analysts say that while Saudi Arabia and others might be able to squeeze out an extra 1 million barrels a day, that's only 3 percent more than estimated current OPEC production of 31 million barrels a day.
The new reality facing OPEC left the ministers over the weekend discussing once peripheral issues: pricing oil in US dollars, climate change, and developing nations. Political opponents of the US – Iran and Venezuela – have been pushing for the market to be moved from the US dollar into stronger Euros. While analysts say that is unlikely to happen anytime soon, the fact that such issues – not oil prices – got so much attention reflects changing times.
US Energy Secretary Samuel Bodman said earlier this week that he did ask OPEC members to increase supply, though he said that the request seemed to have fallen on deaf ears.
Anyone hoping that the OPEC Summit – the first meeting of the leaders of its member states since 2000 – would bring relief from gas prices that have jumped 25 percent this year to above $3 a gallon in the US, is going to be disappointed.
On Friday, crude oil traded in the US rose $1 to over $95 a barrel after Venezuela's Oil Minister Rafael Ramírez said, "OPEC can't do anything about the price ... there is enough oil in the market."
Venezuela – whose leftist President Hugo Chávez appears to revel in tweaking the nose of the US, which he alleges backed a failed coup against him five years ago – has been pushing for higher oil prices in tandem with Iran, as well as a move away from the US dollar.
In this, both countries failed. Saudi Arabia – which accounts for about 30 percent of OPEC production – clearly signaling its opposition to what it views as the politicization of the commodity.