NPR’s Marketplace called me today for comments on this bizarre Financial Times article, “Opec to seek assurances on oil demand.”
Apparently these absurdly rich countries — with projected revenues of $658 billion this year — who are selling their product at nearly $100 a barrel, are threatening not to invest in new production unless the consuming countries promise to maintain demand. Seriously! No, seriously:
Opec will this week seek assurances from some of the world’s biggest oil consumers that they will maintain their demand as the members of the oil cartel come under intense pressure to boost investment in production capacity.
This is the dumbest thing I’ve ever heard, which is saying a lot, considering who our President is. First off, who exactly can speak for the consuming nations and make a binding promise to keep up demand in the face of record-breaking prices? Nobody. This is capitalism. If high prices lead to fuel-switching, how could, say, President Bush, promise to stop it — especially since he has already promised to encourage fuel switching?
Second, as I blogged recently (“Get used to high oil prices“), pretty much every producing country, except Saudi Arabia, is producing flat out. Yet demand keeps going up even at these prices. If OPEC is really worried about demand destruction, then they should want to invest in as much new production as quickly as possible. Indeed, the IEA predicted back in July (“IEA warns of impending oil and gas supply crunch“) the world will see “increasing market tightness beyond 2010, with OPEC spare capacity declining to minimal levels by 2012.”
Third, IEA projects global oil demand will “expand by 1.9 million barrels a day, or 2.2% a year on average, reaching 95.8 million barrels a day by 2012, up from 86.13 million barrels a day this year.” OPEC would be crazy not to invest in as much new supply as they could to meet this demand. Where is a better place for their money — holding dollars?
So what is the really motive behind this bizarre threat? And how is the normally dependable Financial Times confused?