Has OPEC Been Neutered?

Last week, I discussed the factors that sent crude oil prices to just shy of $100 a barrel. While those prices subsequently pulled back somewhat, the factors remain meaningful. Beyond that, I'm more and more convinced that, whether the crude price ascends or retreats, the 13-member OPEC cartel ultimately retains very little control over its direction.

As we noted earlier, the upward crude movement appears to be influenced by such things as supply and demand, seasonality, financial trading, the relative strength of the U.S. dollar, fear of international clashes or shenanigans among producing nations, weather, and national supply stocks. If you think about it, supply is the only one of those elements over which OPEC has any real control, and I think it's apparent that its sway there is waning.

Let's look quickly at some of the crude oil production trends -- in millions of barrels a day (MMbbl) -- among the cartel's seven biggest producers:

Country

High MMbbl Rate*

Current MMbbl Rate**

Iran

 (4.1)

3.9

Iraq

2.5

2.0

Kuwait

2.5

2.4

Nigeria

2.6

2.3

Saudi Arabia

9.6

8.6

UAE

2.6

2.6

Venezuela

3.3

2.4

Source: Energy Information Administration arm of the U.S. Department of Energy. *Highest annual output since 1997. **Average of the first eight months of 2007.

Although I wouldn't go so far as to bet any of my four children on the notion, I'd argue that only the Saudi decline has any meaningful intentional element baked into it. On that basis, it's difficult to take seriously any OPEC talk about aggregate production increases.

Conversely, major production gains during the past decade have occurred in several non-OPEC nations. For instance, Russian output is up nearly 60% since 1997, while there have been boosts in China, Canada, Brazil, and Kazakhstan during the past decade. And either through new discoveries (Brazil and Kazakhstan) or oil sands development (Canada), most of those countries appear capable of further production increases during the next several years.

It's interesting to note that Western energy companies generally have greater opportunities for work in the non-OPEC companies, although Chevron (NYSE: CVX  ) and Italy's Eni (NYSE: E  ) are currently being tested by the powers that be in Kazakhstan. Similarly, BP (NYSE: BP  ) , Royal Dutch Shell (NYSE: RDS-A  ) (NYSE: RDS-B  ) , and ExxonMobil (NYSE: XOM  ) have all had their mettle tested in Russia.

In any event, given both the inherent stakes and the macro changes occurring in energy, I believe Fools would be unwise to neglect a strong investment representation in this important sector.

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