OPEC Actually Makes Sense

OPEC today announced that oil production is satisfactory, and so a boost to output would not be needed... While they may of course be partly correct, or even in full, they could throw us a bone here too right?!

What on the surface of things looks like another greed inspired OPEC nose turn up to a Western concern, might actually make sense. If we can get beyond our anger about $4 gas and hefty summer electric bills, OPEC's argument really does hold some water. And, if you're buying into it, then you might redirect your anger over toward the Federal Reserve instead. Or better yet, suck it up, spend less and enjoy the simple things in life.

Even so, something (read EVERYTHING) clearly needs to be done to help entice petroleum prices back into the stratosphere. We agree on that I hope... So, even if it's not a production issue, might there be a production solution? First let's examine the situation a bit more carefully.

OPEC's Announcement

After the conclusion of its meeting with EU representatives today, OPEC President Chakib Khelil declared that the cartel sees no need to boost production since the problem is not a production issue in the first place. Guess what, we're sorry to say that he's mostly correct.

He astutely pointed out that dollar softness and global, though mostly U.S. pressure, on Iran was the key driver behind oil price rise. Khelil stated, "All you need to do is to look at the data to be convinced that the market is well supplied in oil and that we have enough surplus capacity and that we have enough stocks in the market."

Dollar Did Us In

Let's face it, while oil has reached cut-throat-degree expensive for U.S. consumers, it's only choking-level-pricey for the rest of the non-dollar-pegged world. Today again, as the dollar weakened some to $1.558 per euro, oil prices surged before retracing. Okay, a lot of today's move had to do with the OPEC noise and a rumor that Iran had been attacked. This was later denied by Iran, the U.S. and Israel. The long-term trend is clear though, and it pits oil and the dollar as polar opposites to one another.

What About that Bone

The Saudi's (also known as ExxonMobilville (NYSE: XOM) threw us a bone the other day, announcing they would lift production by a couple hundred thousand barrels a day. But the recent oil summit in Jeddah turned up no follow through from other producers, and today's announcement seemed to kill any possibility of further flow. Kuwait (aka Halliburtown NYSE: HAL), OPEC's fourth largest producer, announced today that recent investments will lead to natural production growth of 300,000 barrels daily by mid-2009. Well, that investment was a no-brainer wasn't it... Oil moderated a bit and sits around $136.55 for August delivery on the NYMEX, but the dissipation of the Iranian rumor dissolved crude, not the Kuwaiti news.

Let's face it, price inspired demand destruction will be the driver to do oil prices in. As alternatives become more viable, and as economies suffer through trying times and offer more incentive to alternative energy research and development, demand will ease to better match supply.

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