posted on Jun, 9 2011 @ 03:55 PM
OPEC met the other day to decide whether or not to increase their oil production. Saudi Arabia called for increased production to meet demand and keep
the price of oil level. Iran called for production to remain flat.
I think that Saudi Arabia is nervous that another world economic crisis could hit, triggered by high energy prices. In 2008 as U.S energy expenditures
rose over the 9% of GDP mark the economy tanked. I do not think this was a coincidence. As today the economy is weakening as the energy expenditure
level just hit 9%. If this increased further I think the U.S will double dip into another recession, this time having fire all of it's guns in 2008
will have nothing left to save it.
So why doesn't OPEC just open the valves and let the oil flow you ask? Greed is the answer some people reply with as they say OPEC is keeping
production capacity idle to increase oil prices and with them OPEC's profits. But I think something else is happening here. As I am currently reading
the book Twilight in the Desert by the late Matt Simmons I have come to realize a few things.
1. That OPEC is very secretive about how much oil they produce. (They do not give out individual field production numbers making it much easier to lie
about overall production numbers because analysts cannot track the production of individual fields to see where the overall increase came from.
2. Saudi Arabia is the worlds swing producer meaning that whenever something happens in the world to cause oil prices to jump up Saudi Arabia has
always increased production to bring oil prices back down to affordable levels. But when Libya's crisis happened that took 1.4 million barrels per
day of oil production off the market Saudi Arabia did NOT step in to increase production, even though it had always done so in the past. I conclude
this is because Saudi Arabia is at or within 500,000 bpd (Barrels per day) of it's production capacity and i do not know if this level of production
is sustainable for long periods of time.
3. Many OPEC nations have already passed their peak in oil production. Iran's peak was in 1974 Venezuela in 1970. Iran is now producing 2 mb/d below
it's peak and Venezuela is 1.5mb/d below it's peak. Saudi Arabia is probably at it's peak now or it would have increased production to allow
further world economic growth insuring oil demand for it's own well being.
If I am correct and OPEC is at peak production with some countries having passed peak and already well into decline then oil prices have no where to
go but up and this will cause massive economic damage to industrialized nations. It is predicted that oil demand will outstrip supply by 1.5 mb/d by
the end of this year. This will cause the price of oil to reach atleast $125/b. The U.S economy is; in my opinion to fragile to handle such an
increase and will likely double dip by Christmas.
On a side note I sold all of my stocks on May 30 just in time for the longest market drop since February 2009. I am waiting on the sidelines to see
how it all plays out. Last time the market dropped in 2008 there were massive buying opportunities.