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February 18, 2008
Crude oil prices have edged up almost $10 a barrel over the last week, prompted by a number of factors. They are now hovering north of $95 a barrel.
Last week it was threats from Venezuelan Supremo Hugo Chavez to cut off supplies of oil to the United States. Today it's reports that the Organization of Petroleum Exporting Countries, which produces about 40 percent of the world's oil, is mulling a production cut.
The mercurial Chavez has since relented on his threat which was to a large extent hollow due to the limited market for Venezuelan oil.
That nation may be the fourth largest supplier of crude oil to the U.S. (about 1.2 million barrels a day last year) after Canada, Saudi Arabia and Mexico, but its oil is heavy, sulfur-rich muck which has to treated by specialized refineries mostly on the U.S. Gulf Coast. Indeed, the market for over half of Venezuela's exported crude IS the United States.
Now OPEC is making noises about possible cuts in production. The organization’s power may be a fraction of what it was in the 1970s and early 1980s, but it still carries a punch. Back then, it literally ruled the global crude oil market, actually setting prices for the then dominant crude – Saudi Arabian Light.
Those days are gone, supplanted by the spot market and the futures exchanges in London and New York, but OPEC retains enough internal discipline to maintain a strong influence on the market.
Since it came into its own in 1973, OPEC has traditionally straddled the line between getting as much for its oil without setting off dire economic consequences in the industrialized economies. It continues that tightrope act, seeking to balance its production (and therefore prices) with the health of the global economy.
The organization recently intimated that it would cut production if global supplies continued to grow. And that fit in with reports that see the U.S. economy sputtering and going into recession - if we aren't there already. Certainly, a slowdown in economic activity would lead to reduced oil demand around the world.
But only last week U.S. industrial production in Januaryt was reported to have risen in line with expectations.
In short, there are fewer signs than usual of what the future brings. Certainly the lack of any clear outcome from, or plan to engage, Islamic terrorism – the war in Iraq (pace Bush’s surge) and the growing unrest in Afghanistan and Pakistan – makes these very jittery times.
That jitteriness is shown in the quick, neurotic price moves following any reports regarding the supply and price of crude oil, the lifeblood of the industrial world.
In short, reality is anyone's guess right now - and that's the problem!
- Peter C. T. Elsworth
Posted by Peter C. T. Elsworth 
at 10:20 AM to Crude oil market
, commentary
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