OPEC falls in line

June 3, 2015 10:06 AM

As much as we want to know, it’s never enough. 

I want to recap the highlights of the week in the world so far; Greece is thisclose to being resolved, Sepp Blatter resigned and the world now has met Caitlyn Jenner. Did that about sum it up for everyone? Go ahead and ask anyone in the office right now and they will be able to rave on about at least two of the three. Yeah, that’s the life we lead and what’s important. Now if you asked anyone about the fact that we sold nearly 18MM cars last month for the highest monthly total since 2005, you would probably get a shrug at best. For quite a while I have been on my soapbox trying to explain that there’s a record number of cars being sold every month and that’s causing unforeseen demand. There’s no “top of the market” here in gasoline. We’re consuming demand at a higher rate because of fuel efficiency, not using less. If Joey Chesnut can eat more hot dogs in an hour than Kobayashi, but you put three more of him on a stage at one time, you triple the number of hot dogs eaten. Sometimes my teeming millions, you have to speak to the masses in their native language. 

There’s an OPEC meeting that’s coming up on Friday and people now are starting to talk about how OPEC is still trying to get everyone in line to keep their production straight. Ya think? The idea now and the fact that happened in November is that OPEC is mainly concerned about how OPEC stays relevant. There’s nothing they can do about shale oil production in the U.S. and they know this. As long as foreign oil stays more expensive than North American oil, there’s no stopping the trend. OPEC is a lot smarter than we give them credit for and they want to stay that way. They have to manage their own house before they start to show concern about someone else’s. OPEC has to make sure that everyone in OPEC is not stepping out of line. Back in November it was about Iraq and the other Arab nations that we’re over producing. Now this time it’s going to be about man-aging all of the current production and making sure that they play nice if Iran comes back in to the picture. 

Finally there’s the oil situation that is U.S. domestic production. Just like OPEC we’re trying to figure out who need to keep producing, who’s going to have to slow down and who’s left to go belly up. Cushing remains the US benchmark, but we’re thinking a lot bigger now and everything that was so important about this delivery point is becoming irrelevant. For so many years we’ve tried to hold on to the these benchmarks as the end all be all, but we’re more than this. The inventories in America don’t all end up in Cushing and with the most profitable production now leaning toward Eagle Ford and Permian, nothing is really about the crude in Cushing. The mar-kets are patiently waiting for something that is more relevant to the Gulf Coast. If there’s any ease on the US crude oil export ban, then Cushing really becomes as important as Taylor Swift’s new boyfriend. It’s only a figurehead until the next best thing comes along. We live in quite the flawed world and all that we think is impor-tant is as fleeting as the last winner of American Idol. 

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About the Author

Carl Larry is Director of Business Development Consultant for Oil and Gas at Frost & Sullivan. Follow him on Twitter (@oiloutlooks) or on his website. He can also be reached at carl.larry@frost.com