OPEC Tosses Us A Few Crumbs While Oil Marches to $80. Why?

…Perhaps the more interesting question, though,is why oil went on to reach new highs after OPEC tossed us this crumb. Might the lack of transparency in commodity futures trading have something to do with it? How easy it would be for OPEC members to promise a supposedly price-easing quota boost just to fill a newspaper headline, while surreptitiously manipulating the price higher by buying up oil futures contracts in markets that are both opaque and commodity exchanges that are largely unregulated from London to Singapore.

But then again, why bother manipulating futures prices higher when the scaremongers and peak-oil pranksters will do it for you. Both the Times and The Wall Street Journal reports hastened to mention and focus on the big drop in U.S. August crude oil inventories. U.S. supplies, however, were still ahead of a year ago, and at levels that comfortably corresponded to five year averages. By the way, if inventories didn’t drop at the peak of the Labor Day driving season, when are they meant to drop. But no one seemed to care about that, in that it doesn’t fit with the scary theme of the day.


The Journal, picked up on a classic OPEC mantra (OPEC President Mohhamed al-Hamli speaking about oil prices Sunday, “markets have enough oil but lack of capacity to refine it was contributing to high prices”) and cited continuing gasoline-supply shortfalls related to refinery outages earlier in the year. This is one of the great canards of the oil patch’s blather: “Refineries are down, capacity is constrained, therefore the price of crude goes up”. Really?! In the world as constituted for the rest of us, or as learned in Economics 101, if you use less of a product the price tends to go down. Refineries are shuttered or on turn-around, they don’t use more crude oil, they use less. Therefore where is the logic, the rationale that refinery bottlenecks cause higher crude oil prices. Certainly if refineries produce less gasoline or fuel oil the price of gasoline or fuel oil may well go up. But not that of the basic feedstock, which is crude oil, and that is what OPEC produces.

And, for good measure, the Journal reporters also threw in the standard party line about most OPEC members producing flat-out, with the Saudis alone supposedly having untapped spare capacity. They failed to note that no one really knows what most of the OPEC members are capable of producing. These are figures held close to the chest though the installed production capability is certainly considerably greater than what is being supplied to market at present with enormous and as yet unexploited potential reserves waiting to be tapped. Just to repeat a point previously discussed, OPEC is currently producing less than the 31 million barrels/day that were being produced in 1979. Yes, 1979!

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