BALTIMORE, MD-For the first time in over two decades, the Organization of Petroleum Exporting Countries (OPEC), which already produces over a third of the world’s oil supply, extended its influence by admitting a new member, Angola, into the oil cartel.
There are several things that the world just doesn’t need. Some of these things include:
- Higher Taxes
- Awards Shows
- Computer viruses
- Pauly Shore
- PEOPLE WHO TYPE E-MAIL IN ALL CAPS
- Chuck Norris
- "404 Not Found" Errors
- The Santa Clause 3
- Fat guys in Speedos
- Mariah Carey
- America’s Funniest Home Videos
- The Discover Card
- Vanilla Ice
- Battery powered razors with 5 blades
- Joan and Melissa Rivers
Of course this is only a partial list. There are hundred of things I can think of that we can just do without. But there is one last thing that I want to add to the list: A stronger OPEC.
There’s no denying that OPEC is the eight-hundred-pound gorilla of the oil game. Member countries currently hold about two thirds of the world’s total oil reserves. And in 2005, OPEC accounted for 41.7% of the world’s oil production, compared with 23.8% from OECD members and 14.8% from the former Soviet Union.
And because oil is fundamental to nearly every aspect of modern life, OPEC has become incredibly influential on the geopolitical stage.
The following cartoon sums up the world oil situation nicely . . .
But OPEC’s reign can’t last forever. And because of seriously aging oil fields leading a peak in oil production and subsequent decline, the mighty OPEC may soon begin to lose its stranglehold on the world.
Get a load of this . . .
Six of the cartel’s nine largest oil fields are in confirmed production declines. These include:
- Saudi Arabia’s Ghawar, the world’s largest known conventional oil field, in an 8% decline
- Kuwait’s Burgan, the world’s second-largest oil field, in a 14% decline
- Iran’s Ahwaz, where production is declining at an alarming rate of 64% per year. Ouch!
On top of that, the water cut levels on some of these old elephant oil fields is unbelievable.
Saudi Aramco, the national oil company of Saudi Arabia, is producing about five million barrels of oil a day (MMbbls/d) from Ghawar. But to get the five MMbbls/d out of the field, they are injecting seven million barrels of sea water per day back into Ghawar in order to prop up the pressure. It’s the same story with several other OPEC fields.
The bottom line is this: OPEC simply cannot organically grow production. The organization is tapped out.
They can, however, procure growth.
OPEC Admits New Member
Yesterday, the Republic of Angola was unanimously admitted as the twelfth member during OPEC’s 143rd conference in Abuja, Nigeria.
Angola’s membership will be effective January 1, but the country won’t be bound by production limits until March.
The African nation will be the first country to join OPEC since Gabon, which became a member in 1975, only to exit in 1994.
With current production of 1.4 MMbbls/d-an 18% increase for the year-Angola is the second major oil producer in Africa after Nigeria and now rivals Algeria as the ninth largest producer in OPEC. State oil representatives, however, expect production to further increase to 2 MMbbls/d by April and nearly double by the end of 2007, thanks to the exploration of new wells.
The maritime zone along the Angolan coast is divided into 74 exploration blocks in shallow, deep and ultradeep waters. Of these, only about 30 are currently in operation. So a significant increase in production is feasible.
The addition of Angola to OPEC will boost the organization’s clout. But with only 22.88 billion barrels of proved reserves, Angola will add only some 2.5% to OPEC’s total reserves of over 882 billion barrels. So OPEC may consider admitting more new members.
OPEC May Grow More
Two more countries are knocking on OPEC’s door in Vienna with membership applications in hand.
Sudan and Ecuador, which have proven oil reserves of 1.6 billion barrels and 4.5 billion barrels, respectively, have recently expressed their intention to bid for entry into the oil cartel.
Sudan is Africa’s third largest crude producer. An oil ministry spokesman was quoted recently saying that his country was waiting for President Omar Hassan al-Bashir to greenlight the move to join OPEC, but that they were confident of his approval.
Sudan is under fire for a conflict in its western region of Darfur. Joining OPEC would give it leverage in its confrontation with the UN over atrocities and its refusal to allow peacekeepers into the area.
Sudan currently produces about 330,000 barrels a day, and that figure is expected to increase considerably in the near future.
Ecuador, a former member of the cartel, is looking to get back in. In December of 1992 the country’s government decided to secede from OPEC, saying membership didn’t boost revenue. But now they may rejoin the group, adding to a shift towards nationalization of resources as espoused by current member Venezuela.
Ecuador pumps about 530,000 barrels a day, which would make it OPEC’s smallest member. The country trails Venezuela, Brazil, Argentina and Colombia among South American producers.
Ecuador is planning to boost oil production to 900,000 barrels a day by 2010. Oil is the country’s largest export, making up about 60% of overseas sales.
Ecuador’s newly elected leftist President, Rafael Correa, has signaled his willingness to follow Venezuela in negotiating more advantageous deals with foreign oil groups.
If approved, the new OPEC additions shouldn’t have much immediate effect on oil prices.
However, I see this as a sign of the times.
OPEC as a whole may already have peaked, meaning the world has peaked. If this is the case, oil prices are poised for massive gains, underscoring our investment position.
I read this week that the World Bank is expecting oil prices to fall to $56 a barrel in 2007 and then to $53 in 2008.
Let me be the first to tell you that this prediction is a load of crap.
First of all, the World Bank couldn’t predict snowfall in a blizzard. This was the same organization that told us oil prices were going to top out at $60 and average $56 in 2006. Here’s proof.
In reality, oil prices topped out at $81.14 on July 14 and averaged $66.10. The fact is, oil prices are just taking a breather.
I fully expect a continuing rally in crude to push oil over the $80 mark again in 2007.
Until next time,
Energy and Capital