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Is OPEC Imploding?

If OPEC's influence is, in fact, waning, what could be the fallout?

Energy Economist

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Crudefunders is the first crowdfunding portal to offer direct investment in Oil & Gas Projects for both sophisticated and beginner investors. It is an innovative, technology marketplace that provides a unique opportunity for ALL types and levels of investors to directly participate various phases of Oil & Gas Projects for as little as $1,000 per investment including an exclusive “free look downhole” for our Reg CF investors. Crudefunders also helps create jobs and increase American energy independence, while improving the odds of success for SMB operators and service companies.

The news surrounding The Organization of the Petroleum Exporting Countries (OPEC) has been quite disturbing lately. It appears the oil cartel is on the brink of imploding. Stories of infighting between the “haves and have-nots”, namely the Saudis and most everyone else within OPEC, have been floating around for years, but the tone has changed and the focus has too, shifting from crude oil price supports to radical Islamic terrorism.

From the Saudis standpoint, with nearly 85% of their citizenship being Sunni, countries like Iran and now Qatar, with the majority of their citizens being of the Shia sect, are some of the biggest supporters of exported terrorism around the world, and this needs to stop. That’s why we saw the story two weeks ago describing the embargo of Qatar by the Saudis, Bahrain, Egypt and the United Arab Emirates (UAE). Qatar and Iran, on the other hand, believe the Saudi-led group needs to clean up their own house first. They believe, since the Saudis are the biggest exporter of crude oil in the OPEC cartel, and they hold the greatest influence within the cartel, they shouldn’t use their powers of influence within OPEC to wage an cross-sect vendetta.

However, many in my profession are beginning to wonder, out loud, if all this is just window dressing, designed to appear as if the Saudis and others are conscientious partners working to stop terrorism. Or, is it a cover to hide the fact that OPEC has ceased to be a world influence on crude oil production and price, and we watch, as program after program fails. Whatever it is, we’re not fooled, the world’s largest oil cartel has lost its way and that’s a dangerous thing. OPEC, as an organized marketing organization, has kept a delicate peace in the Middle East for decades. If its influence on its members is waning, will that delicate peace evaporate?

We need to get to the bottom of this now, because if OPEC can’t control its membership and these geopolitics erupt into more regional conflicts, prices will skyrocket! To understand what is happening, we need to look at OPEC’s history. Over the years, there have been several of these episodes, leading most of us to take a Ronald Reagan approach to “Trust but verify.”

I think it is interesting to look at OPEC’s motives, because it explains a lot. OPEC was chartered September 14, 1960, in Baghdad to help stabilize crude oil prices. Their press releases all promoted an “All for One & One for All” approach. The cartel had power over prices by controlling exports to oil-thirsty nations like the US, and they were going to use it. Their website states, “OPEC’s objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.”

Does anyone remember the oil embargo of 1973, when OPEC placed an embargo on exporting crude oil to the US and several other nations for our support of the Israeli resupply effort? It led to long gas lines and gas rationing. I’ll never forget the first time I needed gas back then and it wasn’t my day to buy. I started riding my ten-speed to school again, then to work, then home. I know, oh poor me, but life had changed overnight and it lasted for six of the longest months I can remember.

Now, you have to be asking yourself the same question I was asking myself, “Can this happen again?” I put a lot of thought and research into this, and my answer is this, while we are a much different nation now then we were 40-plus years ago, we’re just as war weary as we were in 1974 and we lack the public will, to fight over crude oil. We’re not about to get sucked into a fight; we didn’t then and we won’t now. Today however, the balance of recoverable supplies has changed in our favor and, lucky for us, we don’t have to fight. All we gotta do is “drill baby drill.”

Now, there are many in this country that would take advantage of another embargo or some other supply disruption by OPEC to make a case for the renewables like wind, solar, ethanol and biodiesel. We must avoid being sucked in by an ill-conceived tactic from OPEC to give cover to their failures. This could create such a disruption, that many would not recover financially. We must constantly ask ourselves, since when has it been OK to influence a market, using deceit, lies and coercive trade practices like OPEC has done over the years as the world’s largest crude oil cartel?

Well, here’s the answer. I looked up Cartel on Wikipedia, and this is what it said,” A cartel is a group of formally independent producers whose goal is to increase their collective profits by means of price fixing, limiting supply, or other restrictive practices.” This says it all. Their mission, as a cartel, has failed. You can’t bully a world that doesn’t find you important anymore.

Read More from Crudefunders

If you want more information on the energy markets and what is making prices move every day, go to our website www.crudefunders.com and scroll down to where it says “Subscribe”. There you will find our link to the daily commentary “Energy Wise”, a comprehensive piece that includes both fundamental and technical analysis of the day’s energy markets and provides you with the detail that you need. For more on Energy Economist Tim Snyder and his company, go to www.matadoreconomics.com.