Is OPEC Winning the Oil War in 2024?

When did we stop taking OPEC seriously?

OPEC had our curiosity during the 1970s when member countries took control of their destiny and nationalized their oil industries. By doing so, they shifted the power of the world’s oil supply out of the hands of the Seven Sisters — you know them better as Chevron, Exxon, Gulf, Mobil, Texaco, BP and Royal Dutch Shell.  

In 1974, Saudi Aramco gained a 60% stake in Saudi fields and completed the takeover in 1980. Kuwait wrested control of their oil resources in 1975. 

Of course, the oil cartel certainly had our attention in 1973-1974, when they established an oil embargo in retaliation for the United States’ decision to side with Israel during the Arab-Israeli War. 

I won’t go so far as to say we completely stopped taking OPEC seriously, especially when a dozen countries control roughly one-third of the world’s oil supply. But it’s hard not to roll your eyes when you see them pull off some shady moves. 

Some of the veteran members of our community remember the suspicious increases to OPEC members’ declared reserves during the 1980s, when within the span of seven years we saw several OPEC countries suddenly double their reserve base:

It wasn’t just the Saudis, mind you. Iraq dramatically boosted their declared reserves TWICE in five years!

And that’s just reserves, too. 

Cheating on output quotas became a running joke among oil traders. 

Adding insult to injury was the fact that oil field data was one of the tightest closely-held secrets among OPEC’s massive national oil companies. For decades, Saudi Aramco insisted that production at the mighty Ghawar oil field was humming at 5 million barrels per day. 

We later discovered that was a bold-faced lie when the Saudis tried to IPO part of Aramco’s refining business and were forced to reveal that Ghawar’s output was actually closer to 3.5 million barrels per day. 

Still, back then we accepted the lies and manipulation because… well, we had to. By 2008, our addiction to OPEC oil had grown to nearly 6 million barrels per day. 

You know just as well as I do what happened next — an unprecedented tight oil boom that not only unshackled us from OPEC’s chains, but allowed us to become a major oil exporter on the world stage. 

Within the last seven years, U.S. oil exports have grown from NOTHING to more than 4 million barrels per day today. 

Sure, the Saudis tried their best to throw a wrench into the works by collapsing oil prices in a hope of crippling the U.S. oil industry. 

But it didn’t work. U.S. production surprised everyone by climbing to new all-time records in 2023. 

Unfortunately, there’s a catch here, and I wouldn’t celebrate and declare victory just yet. 

We’ve talked before about the downside to surging U.S. oil production — that future growth is quite limited in the coming years. 

In other words, we can’t realistically expect our domestic production to grow anywhere close to how it did over the last decade. We’ll see it move higher, but it won’t come to the rescue as global demand continues pushing into record territory from here on out. 

Investors may not realize the years of runaway production growth are over, but OPEC sure as hell does. 

And this is the year that greedy Saudi oil princes have been waiting a long time for…

We’re going to have a front row seat to OPEC’s revenge for years of stealing their market share, and it all starts now.

In January 2024, OPEC output will record its largest monthly drop in six months, pumping 26.33 million barrels per day — 410,000 barrels per day below December’s levels.  

Even more troublesome than OPEC putting the squeeze on global oil supply is the fact that the Saudis are halting development on boosting the Kingdom’s production capacity. The government has told Saudi Aramco directly to stop expansion plans that would’ve added another million barrels per day to total capacity. 

Tightening supply will mean higher prices as demand grows. 

That alone will put a huge premium on U.S. oil companies that have an edge in increasing output through utilizing new techniques. 

Don’t take my word for it, I recommend you check this one out for yourself. 

Until next time,

Keith Kohl

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A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.

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