At the end of this week, while you're picking at leftovers and recovering from the madness of Black Friday, I suggest you also keep watch over the leaders of OPEC who will be convening in Cairo, talking some serious turkey of their own. The outcome could have profound effects on gasoline prices and your ability to profit from energy investments in the not-too-distant future.
After watching crude prices topping out in July at $147 a barrel, and then turning south to currently sit at about a third of that level, the oil cartel, which accounts for about 40% of the world's crude production, will hold yet another special production meeting Friday. A month ago the group agreed to a 1.5 million barrel-per-day reduction -- including September, that adds up to two million barrels per day in cuts.
The energy slide continues
But, as you've discovered from your television and your gasoline pump, the slide in crude prices has continued. There are several reasons for this: Global shipping times being what they are, the October agreement really hasn't yet run its course, while worldwide demand may be falling about as fast as OPEC's agreed-to output curtailments. And -- perhaps most importantly -- the cartel's members are not always dependable as it relates to their willingness to adhere to agreed-to cutbacks.
Indeed, less than a third -- 466,000 million barrels a day -- of the October pullback was earmarked to come from the group's de facto leader, Saudi Arabia. And just below 200,000 barrels was tied to Iran, which, along with Venezuela, is being hit especially hard by the precipitous crude price slide. For that reason those two countries appear to have pushed hardest for the upcoming meeting, rather than waiting for OPEC's regularly scheduled December session.
OPEC needs your money
The table below provides some indication why the two nations might be on the aggressive side as it relates to pushing up prices:
|
Country |
Reserves |
Advertised Production |
EIA Measure of Production |
|---|---|---|---|
|
Saudi Arabia |
264.2 |
8.82 |
9.36 |
|
Iran |
136.2 |
4.03 |
4.03 |
|
UAE |
97.80 |
2.53 |
2.71 |
|
Kuwait |
101.5 |
2.58 |
2.61 |
|
Venezuela |
99.4 |
2.95 |
2.44 |
|
Iraq |
115.0 |
2.18 |
2.37 |
|
Nigeria |
36.22 |
2.06 |
2.17 |
* From OPEC.org. ** Energy Information arm of the U.S. Department of Energy, 8-month 2008 average; bpd = barrels per day.
Notice the disparity between Venezuela's production -- as indicated by OPEC's website in the second column from the right -- and the Energy Information Administration's very different assessment of its output over the first eight months of this year. As you're probably aware, that disparity relates to Chavez having bid bon voyage last year to the operating expertise of Big Oil like Chevron
So, with its production down substantially, Venezuela can ill afford crude prices of $50 a barrel or lower. By the way, the South American nation produced nearly 3.2 million barrels a day back in 2000.
A needed boost
As to Iran, it appears that about 80% of its government budget is tied to oil revenues. Even more importantly, its fiscal accounts are estimated to break even when crude reaches about $90 a barrel. So, like Venezuela, Iran needs to do everything it can to boost crude prices.
However, forecasts for global crude demand continue to descend. The Paris-based International Energy Agency, for instance, recently cut its world crude demand forecast for 2009 by 670,000 barrels a day.
A new bear on the team
Beyond that -- and this ought to make you run for cover -- it's not inconceivable that, at some point, OPEC meetings could include a bear at the table. Last month, Russian President Dmitry Medvedev met with Abdalla Salem El Badri, OPEC's secretary general. In a subsequent OPEC press release, the parties said that, "It was also agreed that the development of the dialogue and cooperation between OPEC and its Member Countries and the Russian Federation is essential to ... ensure stability of the oil market." Could that cooperation include Russia formally joining the cartel? Let's hope not. The effects of that occurring could be painful for the consuming nations.
OPEC's likely further cuts to its production would occur in tandem with the mothballing of numerous planned global energy projects -- including several in Canada, a large supplier to the U.S. That being the case, it wouldn't be surprising to see crude prices begin to slowly reverse their fall in the short or intermediate term.
On that basis alone, I urge my Foolish friends to carefully watch the larger integrated companies, including ExxonMobil
Oil-related Foolishness:
