Blink, let’s play chicken

For OPEC to be a reliable steward of oil supply and its flex – it must be responsive to world events and react in a manner that communicates its actions and intended actions clearly to consuming nations.
Thursday's announcement of a 60 million-barrel release from emergency stocks -- only the third in the IEA's 37-year history -- came after consumer nations unsuccessfully applied pressure on the Organization of the Petroleum Exporting Countries to increase its output at a meeting this month.

The talks collapsed in disarray, but top exporter Saudi Arabia said it would still produce as much oil as the market needed.

As far as OPEC delegates were concerned, there was no justification for any action from the IEA.

OPEC delegates from the Gulf, which has traditionally sided with the U.S. and favored moderate prices, said it was unnecessary, unjustified interference.

"The oil price hasn't shot up to $150. There is no reason to do this. The market is not short of supply. Kuwait and Saudi Arabia have been raising production, but there have not been many buyers. The IEA is just playing politics with the U.S.," one Gulf delegate told Reuters.

OPEC has yet to issue an official statement, but speaking at Reuters Global Climate and Energy Summit last week, OPEC Secretary General Abdullah al-Badri accused the IEA of being unprofessional.

"Strategic reserves should be kept for their purpose and not used as a weapon against OPEC," Badri told Reuters.

Badri's words recall OPEC's use of its "oil weapon" during the Arab Oil Embargo, which led to the creation of the IEA in 1974 to protect consumers' interests.

A more harmonious chapter began with the formal beginning of producer-consumer dialogue through the International Energy Forum in 1991.

Since then, OPEC-IEA dialogue has been happiest when oil prices were high enough to reward oil producers, but not so high as to alarm consumers.

In June this year, OPEC failed to get as far as a new production agreement. Iran, holder of the rotating OPEC presidency, was joined by six other nations in refusing to add more oil to the market.

They refused even though data from the OPEC headquarters in Vienna agreed there could be an oil shortage later in the year.

Saudi Arabia, which holds almost all available spare production capacity, is expected nevertheless to raise its output toward 10 million barrels per day (bpd) in June and July.

Could this be the Kings club trying to discipline Western Democracies into submission and we’re foiling their plans by using a reserve to dampen price spikes while the EU is dealing with a debt work-out and the US is trying to ignite its economy?

In all likelihood OPEC is trying to influence the US Presidential election. Not happy at the democratic initiatives of Middle Eastern citizens who have been supported overtly or tacitly by the West, OPEC is trying to drive up energy prices to crisis levels to prevent a second term Obama administration.

Perhaps flooding the market with petroleum and bring down to $50 bbl for a period of time would bring producers in line with the democratic reforms their consumers demand and citizens bleed for.

Investment play: conagra