Oil - The Power Has Changed Sides

The time is long gone when Standard Oil of New Jersey, Anglo-Persian, Gulf Oil and their four other "sisters" dominated the world market. When President Roosevelt got King Ibn Saud to open Saudi wells to foreign companies in exchange for American military protection (1945). When Iranian Prime Minister Mossadegh - guilty of nationalizing hydrocarbons - could be overthrown with impunity (1953). When one could pretend to believe that oil is an inexhaustible cornucopia.

Market power has changed sides. It has slipped away from consuming countries and from Big Oil (Exxon, Chevron, Shell, BP ...). The development of the price per barrel ($128), is being determined behind the scenes in the Kremlin and in the meanders of the Iranian government, in Nigerian mangroves and on the banks of the Venezuelan Orinoco, in OPEC's Viennese corridors and in the halls of the New York Mercantile Exchange. And, above all, in Saudi palaces.

The world is experiencing a third oil shock - slower than those of 1973 and 1980. The barrel, the price of which has increased six times in as many years, is more expensive in constant dollars than it was in the beginning of 1981. Its price may ebb by some $10 or $20 in coming months, but nothing is less certain. Analysts as respected as those of investment bank Goldman Sachs see the price going to an average of $141 in the second half of 2008 and to $148 in 2009. OPEC no longer rules out $200.

The Saudi kingdom, the only country able to put a million additional barrels on the market, balks at that idea. It even stiffened its tone recently, when it announced that between 2009 and 2020 it would limit daily production to 12.5 million barrels a day to preserve its reserves and the interests of future generations along with them. "Every time there are new discoveries, leave them in the ground, for our children will need them," the king has resolved.

Nothing induces the Saudis to open the spigots. They consider the market to be well-supplied and stocks of crude and gas to be at good levels. They are especially worried about the United States' energy policy, which aims to reduce US "dependency" on Middle Eastern oil - a watchword launched by Mr. Bush and re-echoed in a single voice by presidential candidates John McCain and Barack Obama. All that's necessary to understand the stakes is to hear the Saudi energy minister's denunciations of the bio-carburants being developed on the other side of the Atlantic. On top of that, comes certain American congress people's desire to submit the oil market to the anti-cartel rules of international trade, even to suspend arms sales if Riyadh doesn't increase its oil production. These initiatives worry and exasperate OPEC. The strategy of the Vienna cartel - which has given up setting a price range since 2003 - seems simple: supply the market to avoid any break, reduce the "security cushion" to a minimum (2 million barrels a day) and thus maintain the highest prices possible without compromising economic growth. With three-quarters of global reserves, the thirteen OPEC member states have the means to enforce their policy.

Text taken from here.