OPEC's Coming Slump

Energy and Capital's Weekend Edition

By Brianna Panzica
Sunday, January 6th, 2013

This week we rang in 2013. For many, the New Year comes as a breath of fresh air, a chance to start anew...

For the U.S. government, it meant an eleventh-hour fiscal cliff deal, reached Tuesday night. Though we technically did go over the cliff for almost a whole day, the markets were closed and the effects remained virtually unseen.

Make no mistake; this last-minute deal still doesn't mean all is now fine and dandy. Our lawmakers have only delayed the deficit problem, postponing it until desperation calls them to make a plan once again in two months.

But oil liked the deal. On Wednesday, WTI futures for February hit as $93.12 a barrel— the highest level since September.

The OPEC Struggle

For OPEC, the New Year means new production struggles and keeping up with both domestic and international demand, a move that's proving more difficult each year.

While production is still rising at a gradual rate for many of these nations, consumption is growing exponentially. In Libya, consumption grew 12% between 2010 and 2011, and Saudi Arabian consumption grew 26% the same year; Iraqi consumption grew 23%; Venezuelan consumption jumped 36%.

These are all signs of increased use of fuel within the population — and of a growing population.

As these nations begin to develop and growing technology demands growing fuel, their capability for exports will decrease, not to mention the fact that their oil reserves aren't infinite.

This is already happening...

OPEC announced this week that its production dropped in December below 31 million barrels for the first time since the fall of 2011.

Iran's exports have been compromised by the sanctions from Western nations, a reaction to the Middle Eastern country's covert nuclear program.

However, Saudi Arabian production also fell. Saudi Arabia is OPEC's biggest producer. In fact, it's the world's biggest oil producer. So it goes without saying this slump will affect exports.

The organization has already announced that January shipments will be down by 1%. The decline, they say, is due to a drop in demand after the peak winter season. But that's not the only reason...

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OPEC's Dying

Nick Hodge told you this week that six of the world's ten biggest oil producers were now also top consumers, with consumption growing much more quickly than production.

And I'm telling you again: U.S. reliance on OPEC is simply a waiting room for them to cut us off.

But perhaps the U.S. is not really relying on OPEC after all...

Last month, we learned that U.S. oil production hit 6.5 million barrels per day in September, bringing production to the highest level since 1998. Production is growing in the major shale formations like the Bakken and Eagle Ford, and others — like the Utica deposit — are set to show progress soon.

U.S. imports from OPEC have been declining, and soon — when OPEC exports have dwindled to a crippling low — we simply won't have the option.

Fortunately, the North American oil boom is ramping up our self-sufficiency.

Good Investing,

brianna sig cropped

Brianna Panzica
for Energy and Capital

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