Because they can.

December 14, 2006 11:05 PM

ExtortionFilter: OPEC is set to cut production by 500k barrels in February, and "may" implement a cut already agreed upon in October. "...OPEC oil ministers agreed broadly on the need to reduce their oil output to support prices, but they had not decided on the timing." Incidentally: "cartel", n. "an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition." -- OED
posted by stewiethegreat (28 comments total)

Agendafilter
posted by jonson at 11:06 PM on December 14, 2006

Also: "definition", n "a statement of the meaning of a word, phrase, or term, as in a dictionary entry" -- PDQ
posted by Richard Daly at 11:12 PM on December 14, 2006

Because they will do whatever (for profit) government lets them get away with. And Government (for power) will allow whatever the people let It get away with.
posted by eustatic at 11:12 PM on December 14, 2006

My, what a shit post.

It's their oil, stewie. They can do whatever they want with it.
posted by prost at 11:19 PM on December 14, 2006

I hope this wasn't an attempt to win the best post contest.
posted by slogger at 11:20 PM on December 14, 2006

I say "Right on!" Maybe fewer SUVs will be running down 12 year olds.

(I wonder which of them was talking on a cell phone -- my pet peeve.)
posted by davy at 11:21 PM on December 14, 2006

Wait... are you trying to say OPEC is a cartel? And it wields a lot of control over oil prices? Has someone alerted the press about this important discovery?!!!?!?!?!!?!1/1!?!?!1//32/2?
posted by thirteenkiller at 11:24 PM on December 14, 2006

OPEC was formed in the early 1960s but had little impact before 1973. Then, to punish the United States and several Western nations for supporting Israel in a war against Egypt and Syria (see Arab-Israeli conflict), the Arab members of OPEC placed an embargo on the sale of oil to the United States and some of its allies. The result was a severe gasoline shortage and a recession in Western nations, especially in Europe, Canada, and the United States. Since then the price of oil has fluctuated, partly because OPEC members have had difficulty agreeing on and policing a common pricing policy.
posted by Brian B. at 11:29 PM on December 14, 2006

High prices are the best incentive for a market solution to the impending peak oil crisis.
posted by treepour at 11:39 PM on December 14, 2006

The market also responded to the 1973 boycott by finding alternatives. OPEC's share of the overall market has shrunk significantly since 1973. And the financial health of the OPEC nations is considerably worse now. Fact is, they can no longer sustain a boycott, even if they were inclined to do so, which they are not.

As to them being a cartel, there's always been a lot of cheating, with a lot of members shipping more oil than they were officially supposed to according to the agreed guidelines. What usually happened was that Saudi Arabia would, quietly, ship a lot less than they were officially supposed to.

But these days Saudi Arabia can't afford that. So in practice there's a degree of fiction involved when OPEC says they're setting shipment levels for all OPEC members. In practice there's quite a lot more shipment than the official numbers.

All of which is to say that there's a lot less to this story than meets the eye.
posted by Steven C. Den Beste at 11:45 PM on December 14, 2006

Steven C. Den Beste writes "All of which is to say that there's a lot less to this story than meets the eye."

Christ. Is that even possible?!
posted by mr_roboto at 11:59 PM on December 14, 2006

They're not doing this to support prices, they're doing this because they're running out of oil.
posted by IronLizard at 12:00 AM on December 15, 2006

A guy on BBC this morning said that they were cutting back the target because they already expected that they were going to miss the target due to problems anyway.

How come nobody has mentioned the reported root cause of the cut backs - the shitty US dollar.
posted by Pollomacho at 12:01 AM on December 15, 2006

I for one would much rather see the children in my neighborhood ran over by a fuel efficient vehicle. This will bend hell.
posted by weretable and the undead chairs at 12:02 AM on December 15, 2006

Can you imagine what it would be like if milk producers colluded with the government to manipulate the milk market?
Oh wait...
posted by 2sheets at 12:07 AM on December 15, 2006

Guess I'll gas up the ol' swimming pool. I'll have to pick up a couple of gallons of Sta-Bil at Auto Zone in the morning.
posted by rolypolyman at 12:25 AM on December 15, 2006

Well as long as that bastion of fundamentalist free market economics, the United States, continues to pay their farmers to grow crops, and institutes "free trade" deals that force other sovereign nations to adopt their regressive intellectual property laws, OPEC can do what it likes with it's little "cartel".

Expensive oil is inevitable, and it will probably be good for you.
posted by Jimbob at 12:32 AM on December 15, 2006

What prost said.
posted by dreamsign at 3:33 AM on December 15, 2006

Also, what prost said.
posted by bhouston at 3:41 AM on December 15, 2006

Oh wait, what Jimbob said, too. With a cherry on top.
posted by dreamsign at 4:39 AM on December 15, 2006

We tolerate/support a cartel that sets our prices and yet in the US itself, such a cartgel would be illegal. Fortunagtley,any number of countris in OPEC cheat.
posted by Postroad at 5:09 AM on December 15, 2006

I'm glad we've figured out that all the problems in this world are due to the Arab Countries...someone tell George, he'll want to know this...
posted by HuronBob at 5:10 AM on December 15, 2006

They're not doing this to support prices, they're doing this because they're running out of oil.

That's looking somewhat more likely with this latest announcement from OPEC. $WTIC is already well above $60 again (the price level they're supposedly trying to defend) and has shown no sign that it's willing to decline much below that level, global inventories are falling significantly in recent weeks (from high levels), and we continue to get reports of unexpectedly large demand increases here and there, such as from China. And they announce another production cut while at the same time they've made some recent statements that could be interpreted as trying to talk the price down. Saudi Arabia was reportedly very much in favour of lowering the quota, and they're the ones most likely to be facing involuntary production declines in the near future if not now. They're drilling like mad, and production is falling. Cantarell is in rapid decline. Russia is looking increasingly unlikely to be able to increase production by much. I was betting on peak oil in 2008, but it's looking quite possible that it might have arrived a bit early.
posted by sfenders at 5:11 AM on December 15, 2006

How come nobody has mentioned the reported root cause of the cut backs - the shitty US dollar

Reported by whom? I can see how declining dollar would cause prices to rise in dollar terms, but what has that to do with cut backs? And certainly oil exporters are capable of taking payment in alternative currencies, chiefly the euro.
posted by IndigoJones at 5:23 AM on December 15, 2006

I absently wonder what will happen to the OPEC countries when they run out of the black stuff. There ain't anything there except dust, otherwise.
posted by seanmpuckett at 5:27 AM on December 15, 2006

They're drilling like mad, and production is falling

There's more and more evidence that Ghawar is failing rapidly, thanks to damage from water-boosted extraction.

Ghawar, for those who don't know, is the one oil field that really counts.

The largest oil field put on line in the last ten years was Qatif, also in Saudi Arabia. It has ramped up to a very impressing 800,000bbl/day.

That's a joke. Ghawar currently prodcuces somewhere around 5 million bbl/day. The joke is that the world is roughly split into oil fields, Ghawar and Everything else. This isn't far from the truth.

Problem. Ghawar is now producing about two million bbl/day in water. The Saudis have been pumping water in like mad to keep the extraction rate up, but now, it's starting to come back and haunt us. Water injection will increase production rates of a declining field - but it also reduces total recovery rates, as the water pressure damages the oil bed, blocking off some of the oil that you have gotten if you'd just waited a bit and drawn off oil at a reduced rate.

Some of the Ghawar wells are now producing 70% water. They should have been capped years ago, but the world won't stand for it.

Sometime, in the near future -- maybe two year, maybe ten, it'll all be over. Ghawar will plummet to maybe 2 million bbl/day, despite the water extraction (and the cost per bbl will be very high, as most of the wells will be sucking far more water than oil.)

Kuwait is being smarter. Kuwait sits on another giant, Burgan. Remember the burning oil wells after the Gulf War? That was Burgan. It's back online, and despite the dramatic images, they didn't lose much of the reserves.

In 2000, Burgan was producing 2Mbbl/day. In November, 2005, Kuwait announced that they were lowering production to 1.7Mbbl/day. Initially, they thought they'd just drop to 1.9Mbbl/day, but there was still clear signs of damage caused by the high extraction rate. The Kuwaiti's think that they'll be able to sustain workable production for the next 30 years, but some think that's too optimistic, and expect Burgan to drop to 1.2 million over the the next decade, then to 800,000 over the following decades. Even if Kuwait is right, 300,000bbls/day are gone, forever, from the world's daily production. Qatif made up for that, but we'd know about Qatif for decades. It just wasn't worth Saudi-Aramaco's time to drill it, given Ghawar.

Nothing discovered in the last thirty years has anywhere near the ability to pump 300,000bbl/day.

Thus, the problem. There's three really big oil fields. Two of them are in serious decline. The third is the pockets in Nigeria, which totals about 60 billion in reserves -- comparable to Burgan -- but is in lots of little pockets, which keeps extraction rates low. The civil wars are keeping extraction rates lower.

After that? 300,000 bbl/day is huge. We're happy to find 10,000 bbl/day fields. None of these are making up for the production losses at Ghawar and Burgan -- never mind the much more severe production drops in, say, the Russian field, the North Slope fields in Alaska, the North Sea fields.

And lots of what we have left? You can't get it out quickly. The ultimate example is the scraper wells in Texas. At one time, if a well wasn't producing at least 5000 bbl/day, they capped it as unproductive. Now, they hook up a pump and an oil truck, and wait a week. Then, they drive a new truck in, hook it up, and drive the other truck to the refinery. Production rates? 10bbl/day is common.

This is also why the tar sands aren't an answer. There's three main belts we know of, all of them have far more oil than every oil field on earth, by a factor of ten.

Problem One: Atabasca, in Canada. Total reserves? 1700 billion. (!) Makes the estimated 170 billion of Ghawar look like a joke. Maximum extraction rate? Maybe 350,000bbl a day. Why? You mine tar sands, you don't pump them. This slows things down. Then you have to extract the tar. This is slow (and takes a bunch of energy, and water, and leave an ecological nightmare behind.) If the Saudi field are capacitors, this is a battery -- stores vastly more energy, but it takes much longer to get it out.

At least we can mine Atabasca. The Orinoco tar belt, in Venezula, has a problem -- most of the tar sands are around 8,000 feet below the surface. They're too deep to mine, too thick to pump. There is a belt very close to the surface (it's even cheaper to dig out than the Atabasca sands) but that's a small fraction of the reserves.

The costs? Est. $16 a barrel for Orinioco's surface belt, $20/bbl for Atabasca. Scraper wells in Texas -- the dregs, mind you -- are about $2. The big boys in Saudi Arabia, about $.15/bbl to produce.

This is what we mean by peak oil. There's lots of oil out there. But we can't get at it easy. We depend on $1/bbl or less in cost of extraction, and we depend on high rates. Those are both going away.

Personally, I think that Saudi Arabia is pushing for cuts, because Saudi Arabia need cover to slow down the extraction rate at Ghawar.
posted by eriko at 5:51 AM on December 15, 2006 [4 favorites]

i hope they do what they plan. 'merica won't reform till we pay for gas what the europeans do.
posted by localhuman at 5:58 AM on December 15, 2006

OPEC = Oil producing and exporting cartel. It's in the name. Of course they fix prices. That's the whole point.

And 500k is nothing.

A more interesting list is oil exporting countries that are not in OPEC, like Venezuala, Mexico, Norway, etc.
posted by Pastabagel at 7:10 AM on December 15, 2006