Tomorrow in Vienna, OPEC will decide how much to cut their oil production in order to stop the rapid price fall since early July. OPEC produces almost 40% of the world’s oil and, more importantly, exports more than half of global trade in petroleum. Saudi Arabia largely holds the reins, since they produce and export more than twice the second largest OPEC player, Iran. Iran, Venezuela and Nigeria are estimated to need oil above $80 per barrel to provide enough revenue for their current natural budgets. While other members such as Saudi Arabia and Kuwait are thought to make ample revenue with prices as low as $55. OPEC remembers the collapse in oil’s price to below $10 after the 1998 Asian Financial Crisis and is determined to prevent a repeat performance during our current financial crisis. So, they are probably debating a cut between 1 million barrels per day (Mbd) and 2.5 Mbd.
The interesting time element to this discussion is that oil demand usually rises more than one Mbd in the fourth quarter. Even if the oil market is oversupplied in October, cooler November weather can increase demand to bring markets back into balance. Thus, if OPEC decides to go for a large cut tomorrow, the price may begin to rise again like it has so often these past ten years. I’ll report their decision as soon as I find it, and we’ll see how this next chapter in the global energy story unfolds.
In natural gas news, the EIA reports that US storage is now at a high enough level for the winter thanks to strong domestic production. This cleaner of the fossil fuels is now able to compete effectively with oil and is even relatively close to coal in price. But wind power growth may suffer in 2009 since the lower price of its main competitor, natural gas, compounds the difficulty to get project financing these days. There still was good wind news reported today as turbine manufacturer Clipper announced a joint venture agreement with BP Wind to construct the world’s largest wind farm in South Dakota (at 5 GW, the farm will be able to provide for all the state’s electricity need plus 1.5 GW for export!).
In sum, let’s keep progressing the sustainable energy transition so that our way of life does not hinge on the generosity of decision-makers at OPEC.