OPEC wants respectability
The Energy Report
Phil Flynn
September 10, 2007
OPEC wants respectability. All right Ali, here's your chance. In the past I have compared Ali al-Naimi, the de Facto leader of the OPEC cartel, to Alan Greenspan when he was Federal Reserve Chairman. Let’s face it, Mr. Naimi has relished his role as sort of the central banker of oil. Mr. Naimi is the Saudi Oil Minister and in truth is the most influential man in the OPEC cartel. He has tried to bring a certain degree of respectability to the business of price-fixing and collusion.
Of course if you want to be compared to Alan Greenspan you have to learn to make the tough decisions and inspire others to go along with you. There are reports that Mr. Al-Naimi actually favors an increase in oil production at tomorrow's OPEC meeting but does he have the will and power to make his case to the other members who fear an output increase? There is little doubt that Ali Al-Naimi is an impressive character but does he have what it takes to lead at this important moment in OPEC history?
OPEC members we have heard overnight such as Kuwait, Iran, and Libya oppose an oil output increase. Can he make the tough call and get the rest of the cartel to realize that this might be the most important decision the cartel may make?
If you want to act as a central banker of oil what you should do is add more oil to the market in signs of economic stress. If there is more oil on the market oil prices should go lower and it should make it easier for the economy to avoid a recession. And with the US economy in scary shape after the much worse than expected jobs report last Friday and the chances of a recession rising does Mr. Naimi have the ability to react to an obviously dangerous economic situation?
Yet the cartel has other ideas. OPEC President Mohammad al-Hamli says that despite the tightening of credit in the US the world economy was growing strongly and should continue into next year. But is he as good a judge about the heath of the economy as al-Naimi? Hasn’t much of the growth around the world been fed in part by the US consumer? And wouldn’t the US consumer be better off if the price of oil was trading lower than the $76.00 per barrel area? Why does OPEC not see that a US recession would be a devastating blow to the prospect for oil demand. Is it just greed or is it fear?
Well it’s probably both but the fear was best expressed by Qatari Oil Minister Abdullah bin Hamad al-Attiyah who asked, “What is an increase in oil production, and nobody will buy it?".
In other words, they fear a price collapse if they raise production and demand still falls. They still have nightmares of when they raised production ahead of the Asian financial crisis that nearly bankrupted many in the cartel. In the long run that price drop helped create an environment that lead to one of the largest price run ups in the history of the world oil markets.
