Suing OPEC for antitrust practices doesn’t strike me as such a good idea. Not that I have any great love of OPEC — it is a cartel, it deliberately engages in market manipualtion to raise the price of oil, it has periodically fallen under the political control of nations that are overtly hostile to the United States. Because the price of oil is rising precipitiously and there seems to be little that anyone can do about it.
But OPEC has been overtaken. Its favorite market manipulation trick — restricting supply — is most certainly not going on; every oil-producing nation is pumping up the stuff at maximum capacity and every refinery in the world is working at maximum capacity. Still the price of oil rises.
Demand for OPEC’s product has so far outstripped supply that OPEC doesn’t need to do anything to jack up the price of a barrel of crude. Nearly two-thirds of the world’s supply of crude oil comes from non-OPEC nations. Indonesia is going to withdraw from OPEC at the end of this year. This is not to minimize the power of OPEC on the market; it is to say, though, that if the Russians ever got their act together, they could exert as much influence as OPEC. Russia, fortunately, has so far decided to go the western capitalism route and leave oil extraction and refining to private enterprise and competition on the open market. Yet still the price of oil rises.
It would be difficult, I expect, to collect on any judgment. Oil is bought and sold on the international commodities market and it is entirely possible that the oil you burn in your car today was purchased by your gas station from a refiner who bought it from a trading house in New York who bought it from another trading house in London who bought it from another trading house in Athens who bought it from another trading house in Hong Kong who bought it from a speculator in Kolkata who bought it from a broker in Dubai who got the future from a broker in Riyadh but the oil was actually pumped out of the ground in Venezuela. Who, along that chain of transactions, is to blame for the ultimate price being $140 a barrel? Where in the process would the judgment levy be attached? And still, the price of oil would rise.
Like it or not, a smooth, constant flow of imported oil is necessary for our national infrastructure to work. OPEC could easily react to the passage of this law with another embargo. If you think gas is expensive now, just wait until we piss off OPEC enough to cut us out of one-third of the global petroleum market. The price of oil would rise then!
OPEC is a political symbol of Arab/Muslim/non-Western wealth and power. It is a sign to other nations that they can become wealthy and powerful without kowtowing to Washington or Brussels. An American law attacking OPEC would therefore quickly turn in to the Al-Qaeda Recruitment Assistance Act of 2008. Who knows, we might even produce a blowback of increasing OPEC’s power and prestige such that its membership expands. The last thing we want is for Mexico or Russia (now the world’s largest producer of crude oil) to join OPEC. That would make the price of oil rise to breathtaking heights.
So it’s not that I like OPEC or approve of its tactics. It’s partially that I fear what it can do. And it’s partially that I think there isn’t much OPEC can do that would change economic conditions anyway. And it’s partially that I suspect that success would leave us worse off than having done nothing.
What I want to know is, with oil at $140 a barrel, why isn’t shale oil extraction moving along faster? The U.S. and Canada could swamp the world market if the price of oil doesn’t fall below about $70 a barrel with existing shale oil extraction technology. That’s half the current market price. Are there people who really think the price of oil is going to fall?