What Is Keeping OPEC Up at Night?
For OPEC life should be good! Oil prices are trading over $100 a barrel, their production is at a three year high and the money keeps rolling in. Life should be good, should it not be? Well the truth is, OPEC is going through a lot of sleepless nights and it doesn't really have anything to do with Iran but it has a lot to do with the unconventional oil and gas production. You see OPEC's desire to produce as much oil as they can has little to do with Iran or even high oil prices. In fact it may be their desire to hang on to their precious market share as unconventional energy sources are starting to cut into their current and future economic prospects. Whether you are talking about tar Canadian oil sands or shale gas and oil production, all of it is making life for OPEC's monopoly look less solid. Not only will OPEC matter less, but the competition from these new sources of energy may create more tension in an already unhappy population as many OPEC governments rely on oil money to run their governments and to stay in power.
Obviously after the tumultuous year that we have just seen with the Arab Spring of discontent spreading through major OPEC producers, the prospect of having as much sway over global oil prices should make them all think about a new way of doing business – even Iran with all of the bluster and blow in the Strait of Hormuz. It is really just a ploy to rally the masses around a regime that the people are sick of. The Iranians of course do agree with the regime on one issue and that is their right to pursue a nuclear weapon. The Iranian regime has exploited the idea and now the attitude permeates Iranian society. While many hate the regime they still have some national pride when it comes to their nuclear ambitions. In fact that may be all they have. Besides they think, “Israel has one; why not us?”
Yet the big buyers and consumers of oil and gas are no longer kissing OPEC’s feet begging them to pump more oil or begging to invest in their inestimable oil fields. In fact so far in 2012 the big money is moving away from OPEC and into North America and unconventional plays.
Even China, OPEC's best hope, is investing big in alternative plays. Right after French oil group Total SA invested $2.3 billion into the development of U.S. shale gas reserves in Ohio, now China's Sinopec paid Devon Energy $2.2 billion for an interest in five different shale gas regions in the United States. Yet what should be more disturbing to OPEC is that China's real interest is to learn the shale production game and technique so they can exploit their own massive shale and unconventional resources.
Is it any wonder why OPEC is reluctant to lose customers by denying them oil? Bloomberg News reported that, "Crude production by the Organization of Petroleum Exporting Countries rose to the highest level in three years in December, led by surging Libyan output. They reported that production increased 162,000 barrels, or 0.5 percent, to an average 30.667 million barrels a day from a revised 30.505 million, the most since November 2008, according to the survey of oil companies, producers and analysts. Daily output by the 11 members with quotas, all except Iraq, climbed 167,000 barrels to 27.967 million, 3.122 million barrels above their former target."
This is another reason why I am predicting a wide range for energy this year. Despite recent high prices, a flood of new production and increasing oil output by many producers will help keep pressure on prices later in the year!
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.