You’re about to witness a very intense crude awakening within OPEC.
You may have already noticed the tension building.
If I were to show you a glimpse of OPEC’s unity back in 1973, it would be a huge contrast to what we see today. The 13-member oil cartel is a shell of its former self.
Bickering has replaced camaraderie. Suspicion has supplanted solidarity.
To understand why the infighting is about to reach a breaking point, just grab a flux capacitor and go back a few years.
Back in the summer of 2014, when Saudi Arabia’s war on crude prices began, the country had one goal in mind: preserve its market share.
The House of Saud had just one nemesis, too: the U.S. tight oil boom.
You can’t rightly blame them for getting jumpy. Between June of 2008 and June of 2014, U.S. oil output increased 66%. That was after decades of decline, too.
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Remember, the ban on exporting crude oil was still in place back then. But even though the Saudis were not worried about U.S. oil flooding the global market, U.S. tight oil was a perfect scapegoat for its oil price war.
It’s not as if Saudi Arabia wasn’t feeling a little sting. U.S. imports from Saudi Arabia have declined by more than 700,000 barrels per day — approximately 40% — since 2003.
For a moment, let’s give the Saudis the benefit of the doubt (as hard as that may be) and assume their oil price war was started to keep U.S. tight oil producers in check.
If that was the case, there were some serious ramifications, one of which was an all-out rebellion from within OPEC.
It’s an implosion you don’t want to miss…
The OPEC Implosion You Can’t Miss
I’ll let you decide if the fiery rhetoric blasting back and forth among the world’s top oil producers is all bark and no bite.
It’s not a difficult idea to swallow. Every day there seems to be some posturing taking place, with oil ministers going back and forth over what they will and won’t do.
Just recently, Saudi Arabia made it clear that it absolutely would not curtail output unless everyone else does — yet it agreed to attend a meeting whose agenda is to curtail global oil output!
Let’s be clear here: pretty much everyone wants to cut output to help ease the global oil glut.
Well, maybe not everyone…
We’ve talked endlessly about Iran’s desire to boost its daily oil output. Now that sanctions on its oil exports have been lifted, the country is one of the very few producers (aside from Saudi Arabia, of course) that can actually increase production.
Iran may not be meeting its goal of increasing its oil exports by 500,000 barrels per day, but it may simply be a matter of time.
Unfortunately, there’s one slight problem here: Saudi market share.
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Is Saudi Arabia Losing Control?
Look, there’s one thing every OPEC member should know by now: when the Saudis say jump, the rest of OPEC is supposed to ask how high. Member countries like Indonesia (who is actually a net oil importer!) don’t really have a choice in the matter.
So when Iran’s oil minister announced that the country adamantly refuses to lower output, we got a firsthand look at how disgruntled some OPEC members are.
Let’s follow this line of thinking a little further…
If Iran sticks to its policy of boosting oil output, then it’s more than likely (unless a deal is struck at the meeting in Doha, Qatar, later this month) that the Saudis will use it as an excuse to maintain or even increase their own daily output.
Considering many of the top oil-producing countries are extracting oil at record levels, simply freezing output isn’t enough to spark an oil recovery. We will essentially have to wait for the supply/demand imbalance to work itself out, which could take quite a long time if global supply remains unchanged.
Sure, there’s an outside chance that Putin will be able to wrangle an exemption for Iran in Doha, but I wouldn’t bet on it.
More importantly, any failure to cut output in Doha later this month would give the bears a chance to get back in the driver’s seat.
Not all is lost, however, because certain catalysts are in place to provide returns for your portfolio… no matter which way the price of oil swings.
Stay tuned!
Until next time,
Keith Kohl
Check us out on YouTube!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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