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26 May 2008



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OPEC is Unhappy with High Oil Prices

OPEC chief Abdala El Badri on Thursday said, “We are not very happy with this increase in oil prices.” Read that again slowly. The Organization of Petroleum Exporting Countries is unhappy because oil is trading at $130+ per barrel. Surely, he’s kidding. Cartels exist to increase prices by limiting supply, right? Actually, he’s telling the truth because, in the long-run, the current market volatility undermines the cartel’s position by weaning customers off oil.

In a statement last week, Mr. El Badri said OPEC was committed “to working for the stability of the international oil market, noting that the current high oil prices are not influenced by market fundamentals, as the market is well-supplied. OPEC will continue to monitor global oil markets regularly and is ready to act if and when necessary to ensure market stability and adequate supplies.”

The current price spike, according to Mr. El Badri, “has nothing to do with the fundamentals. It has nothing to do with world demand.” He blames the weak American dollar for the increase. And if he were being entirely truthful, he’d probably slam the financiers who have parked their excess cash in commodities as they wait out the stock and bond market woes of the last few months because they undermine gasoline consumption by doing so.

A report from MasterCard Advisors covered by Reuters on May 14 said “US retail gasoline demand year-to-date declined 1 percent from the same time last year as prices for the fuel continued to rise.” Reuters also said, “Motorists pumped an average of 9.091 million barrels per day in the week that ended May 9. That was down 7 percent from the year-ago level. Weekly gasoline demand dipped 0.6 percent from the previous week.” Michael McNamara, vice president of MasterCard Advisors, told the news service, “We’ve never seen prices at this level. It really seems that it’s had a material impact on consumers’ driving patterns.”

And that is what OPEC doesn’t want, Americans driving less. What OPEC has sought for a good many years is a slow, continuous rise in the price of oil. OPEC wants an increase that is gradual, lengthy and that doesn’t cause demand to tail off. That is not what it is getting right now. OPEC does have spare capacity, and it will increase supply to bring down prices if it has to do so. For now, Mr. El Badri and his companions are going to try to talk the price down. If gas in the US were to drop to $3.25 a gallon right now, the entire country would breathe a sigh of relief and gladly pay. That is what OPEC really wants.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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