Tuesday, April 14, 2015

OPEC Squeals Over U.S. Oil Production

OPEC today is squealing like the guy in the love scene in Deliverance. OPEC recently issued a March, 2015 Bulletin dealing with the mayhem being wrought among member countries because of low oil prices brought about by oversupply in the world oil market. And at the end of the bulletin, if identifies the culprit:

We are often reminded that in today’s multilateral world, where continents, regions and countries are increasingly becoming interconnected, there is little room for unilateral action, especially in the vast and intricate world of commodity trading. Today, operating purely through self-interest is quite simply frowned upon. As the old adage says, a problem shared, is a problem halved.

Yet, when it comes to the supply of petroleum, there is a stubborn willingness of some non-OPEC producers to adopt a go-it-alone attitude, with scant regard for the consequences. These parties consider producing to the maximum as being the norm. To them, rationalizing the development of one’s precious natural resources in keeping with market demands appears to be an alien concept.

This same self-interest and unilateral thinking could not be more apparent today with the advent of the ‘game-changing’ tight oil, which has taken the market by storm over the past few years. Make no mistake — this unconventional source is a great and welcome addition to the world’s potential oil wealth. But the timing of its exploitation is certainly questionable. The facts behind the market oversupply speak for themselves.

Fact: OPEC crude output has been stable over the last nine years. Production has averaged 30 million b/d, with zero growth.

Fact: Over the same period, non-OPEC production — led by the US and Canada — has surged by 6.3m b/d. In 2014 alone, growth was measured at over 2m b/d compared with 2013.

Ahhh, sweet music.

Actually, this complaint raises several interesting issues.

One, oil production in most, if not all twelve members of OPEC, which includes such U.S. allies as Iran, Venezuela and Saudi Arabia, is state controlled or controlled through a quasi-government agency. For those nations, oil revenue is the entire lifeblood of their economy, just as it is the case of non-member Russia. They produce little else of value on the world market. When the price of oil drops too low, most of the enemies or our nation are in deep economic trouble. It is in our strategic interest to drive oil to a low price and keep it there.

Two, fortunately, this is not an issue that, at the moment, lies in Obama's hands to regulate. In the U.S., oil production is a private enterprise. The government has no way to control the quantity of oil produced, particularly that taking place on private lands, where the majority of production is taking place. As long as Americans can make a buck doing it, the oil will flow and the production will increase. Our evil oil producers are in fact responsible for the one foreign policy success under the Obama administration.

It should also be noted that this oil boom is what saved our nation from an outright depression after 2007 and has allowed the Obama administration, wholly without justification, to claim that their economic policies have had some beneficial effect. Since Obama came in office, fracking, through 2013, has added "$75 billion to state and federal revenues and an additional $283 billion to the gross domestic product."

So the bottom, keep fracking and let's keep OPEC squealing like pigs. It's good for America, and the music they sing is just so pretty.

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