Saudi Arabia walked out on OPEC yesterday. It said it would not honor the cartel's production cut. It was tired of rants from Hugo Chavez of Venezuela and the well-dressed oil minister from Iran. As the world's largest crude exporter, the kingdom in the desert took its ball and went home. As the Saudis left the building the message was shockingly clear. According to The New York Times, “Saudi Arabia will meet the market’s demand,” a senior OPEC delegate said. “We will see what the market requires and we will not leave a customer without oil." OPEC will still have lavish meetings and a nifty headquarters in Vienna, Austria, but the Saudis have made certain the the organization has lost its teeth. Even though the cartel argued that the sudden drop in crude as due to "over-supply", OPEC's most powerful member knows that the drop may only be temporary. Cold weather later this year could put pressure on prices. So could a decision by Russia that it wants to "punish" the US and EU for a time. That political battle is only at its beginning. The downward pressure on oil got a second hand. Brazil has confirmed another huge oil deposit to add to one it discovered off-shore earlier this year. The first field uncovered by Petrobras has the promise of being one of the largest in the world. That breadth of that deposit has now expanded. OPEC needs that Saudis to have any credibility in terms of pricing, supply, and the ongoing success of its bully pulpit. By failing to keep its most critical member it forfeits its leverage. OPEC has made no announcement to the effect that it is dissolving, but the process is already over.
As the world's largest crude exporter, the kingdom in the desert took its ball and went home.
As the Saudis left the building the message was shockingly clear. According to The New York Times, “Saudi Arabia will meet the market’s demand,” a senior OPEC delegate said. “We will see what the market requires and we will not leave a customer without oil."
OPEC will still have lavish meetings and a nifty headquarters in Vienna, Austria, but the Saudis have made certain the the organization has lost its teeth. Even though the cartel argued that the sudden drop in crude as due to "over-supply", OPEC's most powerful member knows that the drop may only be temporary. Cold weather later this year could put pressure on prices. So could a decision by Russia that it wants to "punish" the US and EU for a time. That political battle is only at its beginning.
The downward pressure on oil got a second hand. Brazil has confirmed another huge oil deposit to add to one it discovered off-shore earlier this year. The first field uncovered by Petrobras has the promise of being one of the largest in the world. That breadth of that deposit has now expanded.
OPEC needs that Saudis to have any credibility in terms of pricing, supply, and the ongoing success of its bully pulpit. By failing to keep its most critical member it forfeits its leverage.
OPEC has made no announcement to the effect that it is dissolving, but the process is already over.
Source.
To darkness I condemn you...
This....this is huge. And precisely what Rothbard talked about qua cartels.
Knight_of_BAAWA: This....this is huge. And precisely what Rothbard talked about qua cartels.
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In Man, Economy and State too. But OPEC is a different sort of cartel. Yet, even in its case, the threat of one of the collaborators pulling out can be detrimental. It's a nice illustration of this principle. Is it just me, by the way, or has this event received scant media attention?
-Jon
Not only the media not reporting on it, but my company's fuel buyer did not even know about it until I talked with him a few minutes ago. So it seems to be all over the blogs, but not on a single valid news source. Doesn't mean it did or din't actually happen - but even reporting on a runaway rumor like this is a valid news story in and of itself.
Jon Irenicus:OPEC will still have lavish meetings and a nifty headquarters in Vienna
I just love it how whenever someone is successful it is a bad thing. These countries have made money and that is a travesty. Now I may not agree with how OPEC is founded or works, but I just dont see how making money is a bad thing. The despise by the supposed "cultural elites" of the media of anyone who makes money is counterproductive, based on the goal of many people to support themselves.
Money=good
How is states being successful a good thing?
scineram: How is states being successful a good thing?
I meant on the individual level....hence I prefaced it with me not liking OPEC.
Jonathan: scineram: How is states being successful a good thing? I meant on the individual level....hence I prefaced it with me not liking OPEC.
So? By your standards the US having lavish buildings would be a good thing?
It's not a good thing because the money isn't theirs to spend, simple.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
Is it any different that these are sovereigns with 100's of years of history on the land and using the resources. My question really is - and I have often pondered this - these "monarchies" are really tribal based, is the land not really their property - and therefor the resources under it.
I consider this different than in the US, where resources claimed by the fed are taken by force. These folks have had claim on the land for a long time. I don't know the facts here, so don't blast me.
mpablazer: Is it any different that these are sovereigns with 100's of years of history on the land and using the resources. My question really is - and I have often pondered this - these "monarchies" are really tribal based, is the land not really their property - and therefor the resources under it. I consider this different than in the US, where resources claimed by the fed are taken by force. These folks have had claim on the land for a long time. I don't know the facts here, so don't blast me.
The monarchies still used force to acquire the property, it may just have been longer ago, that doesn't mean it's rightfully theirs.
GilesStratton: So? By your standards the US having lavish buildings would be a good thing? It's not a good thing because the money isn't theirs to spend, simple.
I didnt realize that the US was an individual. I always thought it was a country.
And I didn't realise OPEC was an individual.
Yeah, sometimes I also get the impression people fail to notice the actual injustice taking place and put blame on malfeasors solely for being rich and having money, as if that is evil. Sort of like that idiotic canard "money is the root of all evil".
GilesStratton: And I didn't realise OPEC was an individual.
I didnt say they were. My point was that very often people make the claim that wealth is bad, and the fact that a news agency had reported such was no suprise. Thanks for trying to argue a moot point.
Jon Irenicus:Is it just me, by the way, or has this event received scant media attention?
Nope, not you. I didn't even see it on Digg nor on Google News feeds. This one is getting buried by someone who's heavily invested in the major news outlets for sure.
"The power of liberty going forward is in decentralization. Not in leaders, but in decentralized activism. In a market process." -- liberty student
There's always the possibility it's untrue, of course.
Not really, because a normal oil cartel would have broken up long ago. OPEC exists only because they are national governments which have interests other than profits. But yeah, this is pretty much an example of why profit-seeking organizations cannot form a sustainable cartel.
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But the fact still remains that, sooner or later, internal pressures rip apart cartels.
ladyattis: Jon Irenicus:Is it just me, by the way, or has this event received scant media attention? Nope, not you. I didn't even see it on Digg nor on Google News feeds. This one is getting buried by someone who's heavily invested in the major news outlets for sure.
Well, the original blog post was reffering to a NYT article...
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