OPEC nations had their most profitable half-a-year ever. According to the FT, "Members of the Saudi Arabia-led oil exporters' cartel took home $645bn (£335bn, €430bn) between January and June." That number could get even better in the second half.
OPEC may be doing exceedingly well and it may be building huge sovereign funds to invest in crippled financial companies in the US and EU, but it is taking on a substantial risk.
OPEC has kept is production fairly flat. The organization has done very little to abate the run-up in oil prices. That run-up has been the one of the two or three largest contributors to a slowdown of economies in the West.
A full-blown and deep economic recession is likely to spread from the West to China and India. If the US consumer cannot afford much beyond his mortgage, gas, and food, imports will suffer, perhaps substantially. Falling demand for imports in the US could spread to the energy-hungry countries of the developing world. In other words, demand for crude could collapse as demand for exports falters.
A sharp drop in oil demand could do terrific harm to the pace at which OPEC takes in cash. Record income may seem good for now, but it could drive very unpleasant and unintended consequences.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
8-11-2008 @ 11:01AM
Dan Barnett said...
OPEC has no timetable for drawing out its' (admittedly finite) supply of oil. How does it hurt them to take cash in at a faster or slower rate? So a recession or depression in the rest of the world only makes buying up assets there cheaper to buy. Even with recession induced lower incomes, there is no great need for the OPEC countries to do anything beyond hoarding cash.
What OPEC should fear is a concerted effort to develop alternative fuels.
8-11-2008 @ 1:36PM
PandaBear said...
You are making the assumption that high oil price is the only reason that the West is in a recession. What you are not factoring in is that the long duration of low interest rate and the US housing bubble are now finally hitting home and nothing can provide a quick fix. If you were OPEC you are better off taking advantage of this high oil price than subsidizing the falling US dollar and the recession in the West, and take advantage of the low price in failing companies and buy them up. Purely a business decision, nothing more than that.