OPEC and Oil Price

LScab on 26/01/2017 - 13:24

I'd be interested to hear other people's thoughts and opinions on this, as I really don't get it.

OPEC's sole reason for existence is to collude and control supply in order to achieve a desired market price.

If anyone else tried this on they'd feel the full force of the law, but OPEC seem to do it with impunity.

So much for a free market when pretty much everything in that market relies on a commodity where there's price fixing and manipulation.

I don't get how they're allowed to get away with it or called out for it.

Every time oil looks like it's about to dip too low, they step in to collude and limit supply.

Or, even worse, increase supply to cripple rivals.

As I said, I just don't get how they can do this sort of stuff and that countries and governments do nothing?

Automotive

Comments

  • AlienC on 26/01/2017 - 13:30
    +1

    Money lots of money.

  • mskeggs on 26/01/2017 - 14:44
    +4

    Do you think the ACCC controls other countries?
    Half the world operates under laws we would find reprehensible, you can't take your local conclusions to another place and claim it is right (er…unless you are the US military).
    OPEC is doing what they think is best for their economies.

    A cartel is in the eye of the beholder.
    Consider copyright. How dare the US, who own the largest and most valuable copyrights, seek to impose copyright law around the world! Why don't other governments do something about it? Copyright makes Australia approximately $1billion per year poorer, yet we go along with it because the US has the might to impose their will.

    OPEC is in a similar boat. They have 1/3rd of the world's oil, and if we want access to it, we do it on their terms.

    • ihbh on 26/01/2017 - 15:14

      Copyright makes Australia approximately $1billion per year poorer

      Not sure if you're just making a face value calculation and forgetting the knock on effects.

      If there were no copyright laws, there would be less incentive for people to create IP and hence the losses would be less.

      Also what about the value that accrues to Aussie copyright holders from the rest of the world, have you taken this gain into account?

    • Scab on 27/01/2017 - 06:04

      Do you think the ACCC controls other countries?

      I specifically stated that "countries and governments do nothing", they could impose sanctions and other measures, they've done it to other countries for less.

      They have 1/3rd of the world's oil, and if we want access to it, we do it on their terms.

      If that's such a great business model, then why don't we do it?

      We have a large chunk of the world's uranium and other commodities.

      • mskeggs on 27/01/2017 - 12:07

        To put it another way, belonging to OPEC is not illegal in Saudi Arabia or Iran etc.
        They are not doing anything wrong in their eyes. They have formed a union to advocate for their interests.
        The rest of the world has no right to get their oil if they choose not to sell.

        In Australia, we have an ACCC which says that it is an abuse of market power for a business to collude with other businesses to form a cartel. Should they wish to do so, we will (ultimately) withdraw their right to do business here. We can do that because we are confident that other businesses will fill the niche if one withdrew.

        If we decided to not buy OPEC oil, other oil producers would be able to charge a bit more, and OPEC might have to charge a bit less to other buyers. IF we formed a buyers cartel to impose sanctions, or just refuse to buy from OPEC, we would lose access to 30% of the world's oil supply, driving oil prices to many hundreds of dollars a barrel.

        If we could afford to keep this up for several years, it is likely some high cost projects in places like Australia/USA/Canada would be developed (shale oil etc.). But the parts of the world not part of our buyers cartel would have access to cheap OPEC oil and would out compete us.

        Australia could do the same for iron ore etc. but our advantage isn't as clear cut as the OPEC nations. We have competitors with very large resources that cost a little more to produce, but who could fill the gap more readily. Because of its comparatively scarce nature, oil does not.

        And of course, "countries and governments do nothing" is far from true. The US invaded Iraq to ensure ready access to oil, and they beat back Saddam out of Kuwait to ensure ready access to oil. They patrol the gulf and spend billions on aid to the middle east and elsewhere to ensure ready access to oil.

        • Scab on 27/01/2017 - 13:45

          The US invaded Iraq to ensure ready access to oil

          Nonsense, you don't really believe that, do you?

          And I'm not sure why you keep bringing up the ACCC and not buying their oil, both options that I never mentioned or even suggested.

  • Findo on 26/01/2017 - 15:01
    +2

    OPEC is an intergovernmental organisation, so they aren't under anti-collusion laws. But they are a cartel so they are the scum of the earth. It's funny that even if oil was $200 a barrel, Venezuela would still be in economic strife.

    • Scab on 27/01/2017 - 06:10

      OPEC is an intergovernmental organisation, so they aren't under anti-collusion laws.

      Yeah, I understand that, but countries can do other things to make them change their behaviour.

      I'm annoyed because they do nothing and this cartel is given legitimacy.

      • affable on 27/01/2017 - 07:43

        Countries are doing something - going electric! The great bit is that you can choose how to source the electricity - hydro, oil, coal, wind, PV. And I'm not just talking cars. Already electric trucks, buses, ships, planes are available. The tipping point is less than 5 years away where it will be cheaper to have an EV than an ICE in all circumstances, infact it can be cheaper right now depending on your requirements.

        • Scab on 27/01/2017 - 09:53

          It will take many decades for electric cars to become mainstream and there'll always be fuel used for things like industry.

          So you can't really avoid their price manipulation, either directly or indirectly, at least for the foreseeable future.

        • affable on 27/01/2017 - 10:28
          +1

          @Scab: The only reason EV won't be mainstream in 5 years (let alone a decade) is if people sit on their hands and accept the status quo.

          Just over 2 years ago our family purchased our first EV 2nd hand for $14k and we've since done over 30K km in it as our local runabout. Infact it was so great that just 4 months later we sold our Honda CRV and got a SUV with 50km EV range (and a petrol range extender) for $43k. The 2 EV give us exactly the same flexibility as the ICE cars they replaced. The bonus is there is now a "petrol bowser" in our garage, so no need to stop for petrol every week.

          In electricity vs petrol we are saving around $3-4k every year, and running costs are lower too due to minimal use of brakes, oils, mufflers etc. Now I think I buy more petrol for my ride-on lawnmower than I do for our cars.

  • Diji1 on 26/01/2017 - 15:07
    -2

    You seem to be applying the naive fantasy you picked up listening to neo-liberal politicians trying to sell business interests to the braindead and thinking that it reflects reality to the extent that OPEC can be punished with it.

  • retiredfeline on 26/01/2017 - 15:20
    +1

    Bikies can fix 'em.

    • StewBalls on 26/01/2017 - 16:22
      +3

      Unfortunately, that's as sensible as this thread is ever going to get…

  • t_c on 26/01/2017 - 16:45
    +2

    Real ozbargainers drive old diesels and raid the fat vats at the local fish n chip shop.

    • Cluster on 26/01/2017 - 19:20
      +2

      Ozbargainers use public transport.

      • Baysew on 27/01/2017 - 09:52
        +4

        …or some drive $80K high yielding cars.

      • simmos on 27/01/2017 - 16:40

        Or Eneloop powered EVs maybe? Now there's an idea!

  • chumlee on 27/01/2017 - 08:14

    OPEC is just smoke and mirrors. Speculators and traders control the oil futures. Does anyone seriously think Russia will reduce output when oil prices are rising. They just release a fantasy number to the markets while pumping as much oil as they can.

  • StuffnStuff on 27/01/2017 - 09:47

    Sometimes I wonder if people really care about Oil/Petrol prices. Just the other day I was driving along the stretch of road that has about 6 petrol stations along it. The first 2 were selling unleaded at $1.15 (7-Eleven, Puma) and the rest were at $1.42. Yet people ahead of me ignored the cheapies and drove into the likes of Shell/Caltex/BP. Then there are the people that complain about fuel prices moving just a few cents yet happily pay around $6/litre for water/soft drinks.

    • affable on 27/01/2017 - 11:18

      It could be that those who stopped at Shell/Caltex/BP were on fleet cards? I know my wife and brother both do that in their work cars and the price they pay could be different to what is on the sign.

    • Cluster on 27/01/2017 - 12:47

      People love to complain about fuel prices. It's like Australia's unofficial national sport.

      In Adelaide there are two service stations run by the OTR group on opposite sides of a main road, separated by maybe 50 metres. When the price cycle breaks one station will have petrol selling for 20c/L more than the other, but some people still can't be bothered to do a U-turn 50 metres up the road and buy fuel over 15% cheaper. Those customers weren't filling up on diesel either as the diesel pumps are separated from the rest.

  • simmos on 27/01/2017 - 16:56
    +1

    While it's correct (though purile) to view OPEC with the scorn it deserves, its relevance as a swing producer in global energy markets is beginning to wane.

    Since the 1970s, most of the market-reactive cuts in crude oil production have been orchestrated by the OPEC cartel.

    Shale’s unique characteristics are now allowing it to assume a swing role. These include a cost structure that differs from the front-loaded investment required by conventional oil and gas production. Shale allows short lead times and smaller initial investment, along with lower barriers to entry and exit. Since shale wells are characterised by steep production decline curves, companies invest in real time, drilling and producing when prices warrant. When prices are too low to support drilling, production is restricted by the natural limits of oil flows within low-porosity rock. Shale oil production withers without constant drilling. So with this dynamic now in place, the US is poised to take on the role of swing producer ahead of OPEC whose "time to first oil" from investment decision is far longer than with US shale. This fact means oil will reside in a very tight pricing band of $40-60 capped by US ability to respond adeptly to price increase incentivised investment opportunities. The world has changed and knocked OPEC into the irrelevant hard basket. So they have sown the seeds of their own destruction and isn't that a great thing for the world? There are no losers except for them.

    • mskeggs on 27/01/2017 - 18:39

      I'm impressed you just described the drawbacks of shale as benefits ;-)

      Yes, shale is costlier to produce, and the small nature of deposits means they are only tapped when prices are high and drilling costs can be contained - compared to large conventional fields that require bigger infrastructure because they are now typically in deep water, under slat domes or in inhospitable places like the arctic. Not that this means much for OPEC, who remain the lowest cost producers (well, excluding Venezuela) and where most conventional growth will occur.

      OPEC's problems are mainly to do with the political issues they face - ridiculously high birth rates and youth unemployment in middle east states, guerrilla civil war in Nigeria, economic stupidity in Venezuela, etc.

      It is fair to say the US will be the swing producer whenever prices get high enough to stimulate shale extraction, but I think you will find that access to finance will be the issue for the US - the shale 'revolution' was predicated on cheap money for well CAPEX. That is in lower supply now, as banks/investors happy to make a loan with $100bbl oil prices are going to take a lot more convincing at $55. The indicators from the US show some return to activity in shale, but I think you will find it is almost all completing previously drilled wells. I don't know of any shale well that can turn a profit at $55 oil (cashflow, sure, if you ignore the millions in already sunk well costs, they can pump positively, but only if the CAPEX is written off). If oil hits $80-$90 it will be a different story, and US shale could be profitable.

      There are no losers except for them.

      All the oil consuming people of the world are economic losers if OPEC can't fill our tanks with cheap conventional oil. We can take some comfort that it is a disaster for them, but for shale to be a profitable supply, we will be looking at petrol prices well over $2/l, hardly a win.

  • HeWhoKnows on 27/01/2017 - 21:17

    OPEC doesn't control anything. Especially the oil price! They just set production targets for each member. Members may or may not comply. There is no international law governing OPEC nor its members. And there are non-OPEC competitors some of which are also in the middle-east.
    Furthermore the oil price is controlled more from America. Yes my friends. You heard right. THE ESTABLISHMENT to be precise. "The Establishment" manipulates the price of oil by releasing false statistics about production and oil stocks and by creating anarchy such as oil field fires to push up the price of oil.
    All this happened last year. Oil bottomed at around $30/barrel then The establishment got involved after they had taken their long positions in oil and push the price up to $60/barrel by varies means mentioned above making a motza on the way. OPEC and wall St went along for the ride.

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