OPEC says no one should point the finger at it for $100 oil. The new head of the cartel told Bloomberg “There is enough oil in the market. It’s the problems in Nigeria, in Pakistan and the credit crisis caused by the U.S. subprime- mortgage market collapse that caused prices to increase.”
It is a convenient view. High prices will not cut demand. It does not take into account the fact that the huge growth of energy use in a country like China is underwritten by the government. Thus, the dynamics of demand mean nothing. It does not take into account that the use of oil for heating will not fall much if people are cold.
OPEC also points to the hedging of oil against the dollar. But, the back of hedging might well be broken if OPEC announced new supply and "frightened" some of the speculation out of the market. Like shorts covering in a squeeze when the price of a stock moves sharply, many oil hedges would unravel causing the downward correction to be magnified.
The price of oil sits in OPEC’s hand more than any other single place.
Douglas A. McIntyre
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