OPEC BABY, going on a little pumping spree, you see, been an awful good time. OPEC BABY, so hurry your decision tonight! OPEC Baby, give just a little oil clue, would you, I’ll wait up for you. OPEC Baby, so hurry your decision tonight! Think of the revenue Iran has missed, when Saudi Arabia felt they were dissed. Next year OPEC could live in bliss unless Venezuela decides to throw a hiss. OPEC baby, please just pump alot, it’s just that world tensions are hot. You could throw the economy on its ear, OPEC baby so hurry your decision tonight.
OPEC Baby almost had a decision but Venezuela may be standing in the way as global oil tensions are raising. Oil exploded yesterday after rumors that Iran tried an attempted shut down at the Strait of Hormuz. For those of you who don’t know, the Strait of Hormuz is a very important global choke point for the global oil market. The straits run about 15.5 million barrels of oil per day which accounts for about 1/6 of global consumption. If Iran shut down the straight it would be the equivalent of Iran saying please attack me. While later in the day the rumor was dismissed by the US Navy that saw no such sign of an Iranian suicide wish, the truth is that the rumor had some basis in fact. Bloomberg News, quoting Fars News Service reported that, “Iran’s military is set to conduct drills for closing the Strait of Hormuz, a bottleneck for oil exports from the Persian Gulf, the state-run Fars news agency reported, citing parliamentarian member Parviz Sorouri. “Soon we will hold a military maneuver on how to close the Strait of Hormuz,” said Sorouri, a member of the national security and foreign policy committee, according to Fars. “If the world wants to make the region insecure, we will make the world insecure.” His comments first appeared yesterday on the website of the state-run Iranian Students News Agency before the report was withdrawn without an explanation.”
Now at the OPEC meeting, Iran denied that they had any such plans and tried to mend fences with the Saudi Arabians. The two countries held a side bar meeting and it seemed the two worked out a way for the two countries to save face. This is a way for OPEC to cut production without really saying that they were going to cut. At that last meeting the Iranians were screaming for a cut yet the Saudis were against a cut because they feared that the loss of Libyan oil could drive the world into a recession. That led to what the Saudi’s called the “worst meeting ever” and the first time in recent memory that the cartel could not come to an agreement. The Saudis sent a message to Iran and the rest of the world by pumping the most oil they have pumped since the 1970’s.
Now to appease the Iranians there was an agreement to raise quotas to “current over production levels” but to understate the Saudi's real production levels. Saudi Arabian Oil Minister Ali al- Naimi said Saudi production stood at 10.047 million barrels per day yet according to OPEC they are pumping only 9.597 million barrels per day. So in other words just by doing fuzzy OPEC math the Saudis are agreeing to cut production by 4,500 barrels per day. So everyone saves face and everybody is happy!
Well almost everybody. Venezuela is not. Are they ever? Dow Jones is reporting that Venezuela is “balking” at the agreement. Down Jones reports, “Venezuelan Oil Minister Rafael Ramirez said he opposed setting new quotas for members and reiterated a call for some producers to cut back. “If you are asking me if OPEC is going to agree a new ceiling of production of 30 million," the answer is no, Ramirez told reporters. "We have a quota system that hasn't changed. We are going to work on the basis of the existing quota, which includes the production of Libya." Ramirez also reiterated that producers that boosted output after Libya should now cut back. Saudi Arabia and other Gulf producers boosted output outside the OPEC quota system after the June meeting broke down.” So oil prices that had visions of cuts in production and more QE3D from the Fed will have to put those thoughts in the back of their head.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.