OPEC says no one should point the finger at it for $100 oil. The group's new president, Chakib Khelil, told Bloomberg, "There is enough oil in the market. It's the problems in Nigeria, in Pakistan, and the credit crisis caused by the U.S. subprime-mortgage market collapse that caused prices to increase.''
It is a distorted view. High prices will not cut demand.
That does not take into account the fact that the huge growth of energy use in a country like China is underwritten by the government. Thus, the dynamics of demand mean very little there. It does not take into account the fact that the use of oil for heating does not fall much if people are cold.
OPEC also believes that the hedging of oil against the dollar pushes up the price. But, the back of hedging might well be broken if OPEC announced new supply and "frightened" some of the speculation out of the market. Like shorts covering in a squeeze when the price of a stock moves sharply, many oil hedges would unravel, causing the downward correction to be magnified.
The price of oil sits in OPEC's hand more than any other single place.
Douglas A. McIntyre is an editor at 247wallst.com.
Heinz looking good after the second quarter?
Why isn't Bank of America updating its shareholders on CEO situation?
Will Rich Ross really have a positive impact on Disney's movie operations?
Reader Comments (Page 1 of 1)
1-06-2008 @ 11:35AM
hmalkasian said...
What a joke it is for the new OPEC minister to say the subprime mortgage crisis is the cause of high oil prices. B.S. Gasoline prices were well over $3.00 a gallon before the subprime mess hit us.
Political turmoil has been ongoing in Nigeria for the last 20+ years.
We're not stupid, Mr. Minister!
1-07-2008 @ 4:08AM
Martin said...
Anyone who made himself dependent on OPEC is stupid.
1-07-2008 @ 5:12AM
Dave said...
Gas prices 50 to 100% higher than 2 years ago, and there is wonder as to why there is a Mortgage crisis?
Who predicted that?
Who had time to prepare for that?
While OPEC is supposedly made up of friends and enemies ... which ones are our friends again?
Kuwait and who?
It is time to not only allow, but to encourage more oil exploration here at home. In the USA, even Alaska.
It is past time to build a couple of new refineries.
When I am in Alabama, on the Gulf Coast, and see those oil rigs off shore ... It is a beautiful site.
That is oil that I do not give my enemies money for.
Well, that is debatable since it is the record profit Oil Cos. I would be hard pressed to be able to acknowledge them as friends of the Public.
It has gotten to the point where I see a monopoly.
Maybe it is time for the Government, or the Courts, to step in.
Just food for thought.
Have a Sonny Day.