Washington, D.C. – Members of the Organization of the Petroleum Exporting Countries (OPEC) meet this Thursday in Vienna, to continue their 50-year history of managing the oil market, sometimes successfully and sometimes less so. The organization’s actions over the last 18-months, spearheaded by de-facto leader Saudi Arabia, is now being seen for what it is—a clear strategy.
Thorough examination of oil market dynamics, as detailed by SAFE’s latest report “The OPEC (Saudi) Strategy,” shows that OPEC is delivering on its goal of returning the market to a condition of relative short-term scarcity in which sellers have substantial leverage over buyers, thereby maximizing OPEC’s ability to manipulate prices and extract large resource rents from oil consumers across the globe.
The near two-year strategy is having the following effects:
Contrary to assertions that Saudi Arabia and OPEC were simply rebalancing the market in November 2014, the Kingdom flooded the market with its spare capacity reserves as prices dropped, increasing output from 9.6 million barrels per day (mbd) in November 2014 to 10.2 mbd as of March 2015.
The impacts for the U.S. economy are stark. The oil price volatility harms investment, creates job losses, stifles innovation, and creates economic dislocations. The shale industry alone has experienced dozens of bankruptcies and hundreds of thousands of job losses.
“The American oil shale revolution has not fundamentally changed this dependence on other countries,” said Admiral Dennis Blair (Ret.), former director of National Intelligence, former head of the U.S. Pacific Command, and member of the Energy Security Leadership Council at SAFE. “As both an oil producer and a consumer, we’re subject to economic harm whichever way the prices go.”
SAFE’s latest analysis, “The OPEC (Saudi) Strategy,” and its National Strategy for Energy Security propose clear recommendations for breaking the United States’ near complete reliance on oil to power our transportation sector and defend the American economy. SAFE specifically calls for the establishment of a commission of experts (H.R. 4559) to investigate anticompetitive actions by OPEC and other national oil companies, assess their impact on the U.S. economy, and put forth policy recommendations. We believe people need to understand the whole story, not just a snapshot of the last 18-months. The current changes in oil supply and demand ensures the crisis of tomorrow.
The free market works when participating companies set production at profit maximizing levels. OPEC members and National Oil Companies (NOCs) typically set production at levels based on a range of other factors, including social, domestic, and geopolitical factors. A functioning competitive market relies on price discovery for participants to make plans and compete. OPEC’s collusion, as well as a lack of transparency of NOCs, impedes price discovery even when they do not restrict output.
The full list of recommendations from the National Strategy for Energy Security: The Innovation Revolution can be found on SAFE’s website at www.secureenergy.org. The Issue Brief, “The OPEC (Saudi) Strategy” can be found here: http://test-safe-secure-energy.pantheonsite.io/report/opec-saudi-strategy/
About Securing America’s Future Energy (SAFE)
Securing America’s Future Energy (SAFE) is a nonpartisan organization that aims to reduce America’s dependence on oil and improve U.S. energy security to bolster national security and strengthen the economy. SAFE advocates for expanded domestic production of U.S. oil and gas resources, continued improvements in fuel efficiency, and in the long-term, breaking oil’s stranglehold on the transportation sector through alternatives like natural gas for heavy-duty trucks and plug-in electric vehicles. In 2006, SAFE joined with General P.X. Kelley (Ret.), 28th Commandant of the U.S. Marine Corps, and Frederick W. Smith, Chairman, President, and CEO of FedEx Corporation, to form the Energy Security Leadership Council (ESLC), a group of business and former military leaders committed to reducing the United States’ dependence on oil.
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