Opec machinations keeps US on track
Opec’s oil-market management and in particular its repeated attempts to raise prices have done more than any other single factor to boost US oil production and set America on the road to some sort of energy independence, whatever that might be.
Far from vilifying Opec, US senators should be erecting statues to the 13 men who are helping to “make America great again.”
Yes. While it is very important for the United States to engage with other oil producing nations, I do not believe that we should collaborate with Opec to manipulate oil markets.
He said nothing about taking measures against Opec.
Some may see that as a reflection of Tillerson’s long oil industry career, but I think it runs deeper.
The US shale industry wouldn’t have taken off as it did, creating all those jobs along the way, if Opec hadn’t cut oil supplies after the 2008 price crash and then managed things to keep costs above $100 a barrel. Entrepreneurship, ingenuity and mineral rights all played their part in the shale boom, but the take-up of technology wouldn’t have been anywhere near as fast or extensive if somebody else hadn’t given up their own market share. Besides, it’s much easier to make mistakes and learn what works and what doesn’t in a $100 oil world than in a $50 one. If you’re not convinced, then take a look at what happened when Opec stopped manipulating oil markets.
In June 2014, the group decided to roll over its official output target of 30 million barrels a day for another six months. Before it next met in November, actual production had risen by about one million barrels and oil had dropped by 30 per cent, pushing WTI down to $73.69. And that was before Saudi Arabia persuaded other members to abandon restraint. Once the restrictions were lifted and volumes rose further, prices collapsed, sending WTI to a 13year low of $26.21 a barrel. Was that in America’s interest? Well it certainly cut gasoline prices, which was a bonus for drivers, and it put money back in consumers’ pockets. But it had a delayed negative effect on US GDP growth, which fell from around three per cent as oil prices started to weaken to close to 1.5 per cent amid $50 oil. Oh, and it decimated the US oil patch, with a loss of about 14 per cent of the workforce. Now, if like Ed Markey, you’re an “environmental hero”, that might seem like a good thing. But I’m not so sure.
Yes, high prices increase the rewards for exploitation of the black stuff and make it profitable to produce oil that might otherwise stay in the ground. But they also make it much easier for frontier renewableenergy technologies to break in. Just as $100 oil supported the birth of US shale oil, it’s done the same for wind and solar power, too. That’s one of the reasons there was so little outcry from European governments over rising oil prices in the early 2000s — they made it much easier to pursue green-energy policies.
The short-term benefits to oil of high prices, underwritten by Opec output cuts, may ultimately serve to hasten its demise.
Tillerson’s response should warm the hearts of oil fans and detractors alike. No, the US won’t join Opec’s market management. It’s quite happy to let others bear the burden of supporting prices. But it won’t condemn the practice either. Opec’s market machinations will boost the US oil sector in the immediate future, but hasten crude’s demise as the world’s primary fuel source longer term. — Bloomberg