BREAKING OPEC CONTROL OF GLOBAL OIL SUPPLY & PRICE: IS AN INTERNATIONAL “BUYER CO-OP" THE ANSWER?

UPDATE: September 20,2011:

 

Continuing my effort to understand oil and its place in global politics and global economics I have come to a very different understanding than I had when I frist wrote this piece.  I have come to understand that the real issue on the price side of oil is that it is driven by the derivatives bubble’s distortion of the commodities markets and that  we have to stop feeding the derivatives beast.  The Fed could do that right now

 

 

http://www.forbes.com/sites/greatspeculations/2011/05/08/fed-has-power-to-pop-commodity-bubble/

 

 

The provisions of Dodd-Frank that sought important reforms in the commodities markets to realignprice with end user demand, to effectively the “price fixing” effect sof speculation were completely disemboweled and other important provisions delayed with a hope by wall street of eventually repealing  Dodd-Frank altogether.

  

I hope to be writing a new post soon on the derivatives bubble but wanted to acknowldege here that I now see a buyers cartel as not effective until the commodities markets world wide are once again linked to real costs of production and real end user demand.

 

   Also, since writing this post many months ago, I have been influenced by the work of Energy for One World, by the reality of post peak oil, and the immense challenge of our global transition to more sustainable energy.  In general that takes me completely away from any strategy that is based on competition and control and towards a more collaborative stratgey for managing existing reserves equitabky and wisely through the transition to sustainable energy. 

Cove Meadow Sep 11, 2011

My blog here at posterous is my own search for truth..not about influencing or persuading anyone else. Over the past few months I have been doing research to understand why the U.S. was willing to take the risks it did in the Gulf with BP, why as we were reeling from the Wall St Bail out  we loaned $2billion to Petrobras for offshore oil explorations in Brazil, why we subsidize oil companies at $10 billion a year.  And I think I am beginning to get it. Of course we all want an emphasis on alternative energy, we want to reduce our reliance on oil but in the mean time, the price  of oil , controlled by OPEC, is not going to go down and hi prices hit the poorest hardest.So even as we all work towards decreasing our dependence on oil and looking to alterenate renewable energy resources, we must also find a way to bring oil prices down.

  My search to understand the truth about U.S. policy, the truth about Libya, the truth about oil, the crown jewel of the plutonomy..has lead me to the conclusion that no one country can have any meaningful effect on the price of oil and gas at home, the effect of oil prices on consumer goods and services here at home. The U.S. consumes 25% of the world’s daily oil supply and yet it is able to supply only 35% of its own demand through domestic oil.   OPEC controls 78% of the world’s oil reserves, Saudi Arabia alone 56% of the world’s reserves.  By simple math, collectively the world’s biggest users of oil, China, the U.S. the EU, own considerably less than 22% of the world’s oil reserves even though Canada owns the second largest supply of oil after Saudi Arabia.  It seems obvious that  no one country has enough power on its own through supply or demand to have any effect at all on OPEC supply and pricing decisions. 

  OPEC operates to keep the global price of oil as high as possible by keeping supply closely honed to demand. http://www.investopedia.com/articles/economics/08/gas-price-emails.asp  No amount of oil production by non-OPEC  producers will shift price downward.  Only reduced global demand  shifts price downward.  With China’s demand alone growing at 7.5% annually, this isn’t likely to happen. OPEC should be able to maintain oil prices at current prices for the immediate term.  When the U.S. dollar returns to a natural market level instead of theartifically suppressed  level  intentionally maintained at the moment there would be  some effect as OPEC oil is priced in U.S. dollars but it wouldn’t fundamentally change OPEC’s control on oil prices.  

 But what if China, the U.S.,  EU and Canada formed a buyer’s collective to purchase oil  as a collective on a lowest bidder basis or preferred country basis?  Would purchases in priority of price or country effect a significant shift?   What if the biggest consumers of oil first exhausted all available non-OPEC oil available before using or buying any OPEC oil?  What if the buyer co-op also collectively worked  and invested to  explore and develop  non OPEC reserves? What if major consumer countries like the U.S. shifted it s policy on oil subsidies to encourage the plutonomy out of its focus and investment in OPEC oil?

  On the supply side Canada is key as they control the second largest oil reserve in the world after Saudi Arabia. They are presently a significant supplier of non-OPEC oil to the U.S…but also to China..the other key to shifting OPEC control.  The U.S. might also become more key if it can figure out a safeway to undertake  deep water drilling in the Gulf.   Is it possible that the reserves there are significant enough together with Canada’s known reserves to change the supply side equation and OPEC’s control of that?  Brazil is also exploring deep water resrves and the U.S. quite understandably has supported that with $2billion in loans and guarantees to PTEROBRAS through the IMF.

  Canada’s dollar is 80% determined by its commodities..mostly by its oil.  Operating independently it has no interest in increasing supply unless it can also maintain stability on price.  Could that stability be provided  through an international buyer’s co-operative that guaranteed  Canada a significantly larger  share  of the world’s market demand than it has now and the price of that was negotiated in a way that maintained stability?  What if as part of the scheme, the big demand members of the Buyer’s co-op sweetened the pot by shifting its oil subsidies in a way that brought more investment and technology to Canada to help develop its tricky to drill Sand Oil Reserves?  What if the U.S. and other big users of oil shifted its policies to encourage assets and investments away from OPEC oil towards non-OPEC oil?  Both the U.S. and Canada have many  “homeland companies” deeply invested in OPEC oil .  Can OPEC deliver its oil to the world  without the  technology and capacity  of the these foreign oil interests?  If all the buyers could find a way to shift that technology and capacity towards non-OPEC oil wouldn’t that force OPEC to be more accountable to the world in its policies on supply and price?

  China is key on the demand side.  It is already a top consumer of oil worlrd wide but more importantly it’s demand for oil is increasing at an alarming 7.5% annually.  China is a key buyer not just of OPEC oil but also of Canadian oil.  A U.S. E.U. buyer’s coalition would not be effective on its own. Both Canada and China are key.

  I am only raising the question about the possible effect of a buyer’s co-op in shifting control away from OPEC.  Are we really irrevocably locked in to OPEC control or is there a path out of that?  It won’t be easy as all of the major oil demand countries also have significant and powerful private corporate assets and investments deeply tied to OPEC.  So even if further analysis indicated a shift is possible through an international  buyers collective, it will be very difficult to entice US Canadian EU and Chinese oil interests out of OPEC and toward more speculative and challenging  non-OPEC resrves but surely done as a collective that shift is more possible.

  I will be adding moré links into this post over the next few days in support of the statements made above but meanwhile, in no particular order, here are some links anyone interested might use to get more background and form their own  conclusions.

AntiOPEC Buyer’s Caretl was official policy under Nixon Ford Carter http://zfacts.com/p/994.html

Buyer’s Cartel Might work, especially if supplemented with a surcharge on foreign oil  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=869120

Ralph Nader & others suggest that in addition to a buyer’s cartel a full frontal assualt on OPEC and on artificially high oil prices would be to increase margin requirements on the New York Mercantile exchange http://www.counterpunch.org/nader04292006.html

 Facts and stats on oil  http://www.investopedia.com/articles/economics/08/crude-and-gas-prices.asp

  How supply and demand work to keep the price of oil continually going up.  http://www.investopedia.com/articles/economics/08/gas-price-emails.asp

  Ineffectiveness of U.S. Subsidies in controlling price and supply at home      http://www.nytimes.com/2010/07/04/business/04bptax.html 

  Energy & fuel costs are hitting poor and working folk the hardest.. http://www.bls.gov/news.release/cpi.nr0.htm

  How oil is Bought And Sold..Saudi Oil Exchange http://namcworldwide.com/crudeoil/  

  Oil Price,Supply & Demand Forecasts http://www.cges.co.uk/

  Since writing this blog this morning I discovered two earlier indeoendent suggestions for a buyer’s caretl..one an indian blogger http://naval-langa.sulekha.com/blog/post/2008/02/rising-oil-prices-there-is-a-remedy.htm  and one by about some work by a university of chicago economist     http://www.slate.com/id/2131024/ 

A commenter on the indian site suggests that the U.S. has strong disincentives to join such a cartel and I am wondering if this might be why a global buyer’s cartel has not been explored.

The U.S.. uses 18 million barrels of oil a day importing 10 million barrels only 16% of which comes from OPEC

 

 

http://www.associatedcontent.com/article/6041408/us_oil_imports_by_country_of_origin.html

 

 

 

 

 

 

 

 

  

 

 

 

 Lindsay Newland Bowker

 

 

Cove Meadow April 12, 2011

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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About lindsaynewlandbowker

Bowker Associates, Science & Research In The Public Interest, is an independent non profit providing self initiated pro bono analysis on key issues with a potential for massive adverse environmental impact . Bowker Associates has been an internationally recognized and cited voice in analysis of the Samarco failure, its consequence, and the possibilties for recovery. In 2015 Bowker Associates collaborated with globally respected geophysicist David M. Chambers to recompile global authoritative accounts of significant TSF failures in recorded history and to analyze these data in the context of gloal mining economics 1910-2010 ( Risk, Economics and Public Liability of TSF Failures, Bowker/Chambers July 2015) In 2014 Bowker Associates commissioned globally respected geophysicist and hydrogeologist Dr. David Chambers to undertake two technical works: (1) development of technical go no go criteria for vetting mine applications tp://lindsaynewlandbowker.wordpress.com/2014/01/05/a-new-statutory-regulatory-framework-for-responble-sulfide-mining-should-this-mine-be-built/ and (2) a case study of Maine's Bald Mountain, an un mined low grade high risk VMS deposit demonstrating the efficacy and accuracy of two risk assessment tools in vetting mine proposals https://lindsaynewlandbowker.wordpress.com/2014/02/28/mountain-x-would-you-issue-a-permit-to-this-mine/ In Maine, Bowker Associates has deeply engaged and been a public voice in the Searsport DCP LPG Tank, The Cianbro proposal for a Private East West Toll Road, JD Irvings rolling pipeline of Bakken crude to its plant in St. John and review of Phase II plans at The Callahan Superfund site in Brooksville, Maine, and Maine's revisitation of mining in statute and regulation... Our only “client”: is always “the pubic interest”. Our model is to focus on only one or two issues at a time so that we have a substantive command of the relevant field as our foundation for ongoing engagement. Our core work is in envirommental risk management, science and technology as well as bringing any available “best practices” models to the fore. The legal and regulatory history/best models are also a major thrust of our work in building and evaluating public policy. Director/Principal Lindsay Newland Bowker, CPCU, ARM is a recognized expert in Environmental Risk Management., Heavy Construction Risk Management and Marine and Transit Risks and has more than 3 decades of engagement in buiding public policy. Appointed by Governor Mario Cuomo to New York State Banking Board (served 1986-1996); President New York Chapter Chartered Property and Casualty Insurers; Environmental Committee, Risk and Insurance Management Society; Director, Convenor/Co-Chair Bermuda Market Briefing "From Captive to Cats" Hamilton Bermuda. Published Articles of Significance The Risk Economics and Public Liability of Tailings Facility Failures, co-authored with David M. Chambers, July 2015 Beyond. Polarization: Superfund Reform in Perspective, Risk & Insurance Managing Risk For Loss Prevention & Cost Control (Jan. 24, 1997). Lead Hazards and Abatement Technologies in Construction: A Risk Management Approach CPCU Journal 1997 Employee Leasing: Liability in Limbo Risk Management June 1 1997 Environmental Audit Privilege and the Public interest Risk & Insurance Managing Risk For Loss Prevention & Cost Control, April 1997 Asbestos:Holes In Abatement Policies Need To Be Plugged, Lloyd’s Environmental Risk International, May 1993 Editor Published Letters Evironmental Risk Management Beware of Facile Policies Like Fetal Protection Business Insurance 1995(?) High Court Review May Increase Sale of Bank Annuities Business Insurances August 8, 1995 Professional Profiles Protecting the Big Apple’s Core Managing Risk For Loss Prevention & Control December 1996 Major Career Highlights First rigorous analysis showing Relationship Between declining ore grades and TSF Failures of increasing consequence ( July 2015) FIrst Documentation that Gentrification Has Same Impacts as Unassisted Displacement from Urban Renewal Sites Direted Court Ordered EIS of FHA Mortgage Scandal Created Nation's First Homeownership Program for Low Income People (SHIP) Created Earliest Geographic Information Systems Using Defense Technology Developed By IBM Designed and Conducted Parallel Census Count to Show Systematic undercount in minority neighborhoods Documented Bias in ISO Territory Rating Plans for Private Passenger Auto Insurance Using ISO's own Rating Techniques Demonstrated Inherent Bias in Mortgage Policies of Banks With Inner City Branches Demonstrated that NY Telephones Plan for Area Code Split To accommodate anticipated cell phone demand was not efficient and would exhaust in 5 years ( which it did) Undertook First Systematic Evaluation of Child Protective Services Caseload Using Multi Variate Analyic Techniques Developed Child Protective Caseload Management and Tracking System (CANTS) and directed implementation in 4 client states including Illinois, Florida and New York Created and Ran Office of Risk Management for NYC DEP the Nations largest Water & Sewer Authority . Designed, Created and Administered Nation's First Owner Controlled Insurance Program (OCIP)for High Risk Tunneling Education Masters NYU Graduate School of Public Administration BSC New School For Social Research Maine Public Schools Deering High School
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One Response to BREAKING OPEC CONTROL OF GLOBAL OIL SUPPLY & PRICE: IS AN INTERNATIONAL “BUYER CO-OP" THE ANSWER?

  1. Lindsay Newland Bowker says:

    Hi Krishna,Thank you for writing and thank you for caring about the place of oil in bringing us to this brink of catastrophe.I think it might be as bad as the authors of Aftershock foretold but am hoping that this global awakening and backlash may coalesce into collaborative, co-created action that might be in time to bring about a course correction. That is far from certain at this moment in the history of our fragile and broken earth.No matter what we do, the earth and her people will cry for a very very long time.As I posted above as addendum to my original post I have learned much and much has happened since I first wrote this. I think the battle now is to hasten our shift to alternative energy not cling to oil at any cost as we will be doing if we embrace tar sands and other costly risk post peak oil extractions.We must start living wisely in the reality of of this post peak oil era; we must wean ourselves off oil andall its products as quickly as we can. Each of us must awake to the many ways we feed the oil tapeworm..wean ourselves completely off all plastic; stop producing plastic; stop producing and building in ways that are dependent on oil.It may be too late..I am no longer sure, but we must rally and collaborate and think and act as if we could make difference..if we do that, maybe we can.Thank you for holding up your end, Krishna in this essntial work.

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