PARIS (ResourceInvestor.com) -- It is amazing how the march of time dulls the minds of people who are otherwise extremely smart, and OPEC ministers too. Each year over the past three years, 2004, 2005, 2006 and now 2007 we have seen prices top their current range in the third and fourth quarters of the year. This year has proved no exception with NYMEX crude oil hitting $99.11 in trading last week.
In 2004, OPEC still thought that we would return to its $22 - $28 per barrel price range; at least that is what it said it thought. In reality OPEC probably did not have a clue which way the oil price would go, it just said that for political reasons, and today is much the same.
Once again OPEC says crude should return to more normal levels, with its blame placed on the shoulders of “speculators” - as if there was a time when the market place was devoid of people speculating on prices. It also claims - as do executives like Rex Tillerson of ExxonMobil [NYSE:XOM] - that the oil price is inflated due to the weak dollar.
Firstly we find ourselves once again in the third and fourth quarter of the year, with demand still extremely strong and no one really knows where the oil price is going. But secondly we have a series of people, OPEC and Tillerson included, who are placing the cart before the horse.
The dollar is low because of the high price of oil and energy. The price of energy is not high because of the weakness of the dollar. The dollar’s big falls have come after the rises in crude prices and the falls are a result of people switching out of weak and volatile currencies into positions that generally retain value, notably commodities.
For example, no one blames the rise in wheat and corn prices on the weak dollar. After all the wheat and corn farmers are taking 50% of their money from the U.S. taxpayer. Instead they rightly blame it on the extremely inefficient, subsidy-driven disaster that is U.S. biofuels: A tax on most of the world’s population, to prop up the most energy-wasteful economy of the world.
So we can see that it is the failure of the international oil companies and nation al oil companies to find plentiful reserves of oil that is driving these problems, not the other way around. A phenomenon that shows no sign of stopping.
The result is that the dollar has been driven lower and lower so as not to destroy the U.S. economy on which so much of the world, notably China, is dependent. Another result is that OPEC is finally coming around to talking about how to price oil in other currencies than the dollar.
Now there is no doubt that in the upcoming meeting Iran and Venezuela are going to argue for a move away from using the dollar as the sole trading currency for oil - they will also undoubtedly be doing this for political reasons.
In reality any shift away from the dollar would end up with those countries receiving the same level of value for their oil as would otherwise been the case. Peak oil means higher - and volatile - prices, it does not matter what currency you eventually get your rewards in.
As we have said above it is the failure of the companies to add production that has exposed peak oil as a reality, whether you believe it to be geological, geo-political or the failure of neo-liberalism. In turn that has stoked problems for the U.S. economy. In turn those difficulties prompted the current problems for the dollar. In turn those problems for the dollar prompted the talk of the dollar opt-out from OPEC. It is strange to see how many pundits and analysts have forgotten this train of events, even as they observe it going on.
The reason high oil prices exist is because production is not being added. It is why an extra 500,000 barrels per day of the sourest crude OPEC has will not make a difference. It is why the oil companies are banking on recession to buy them breathing space. It’s all about the (peak) oil stupid….
