Oil At $103: OPEC On Cloud Nine

Oil moved over $103. The excuse this time was that "Ecuador’s state-run oil company, Petroecuador, suspended operations at a key export pipeline after a landslide damaged infrastructure," according to MarketWatch.

That has nothing to do with what is actually happening. OPEC has learned to game the system of rising oil prices by largely staying on the sidelines. It has mentioned it could drop production slightly in March but some of its ministers have said flow will stay steady.

The new psychology of oil prices is based on flooding the brain with enough unrelated pieces of information that it sets off a panic.

Much of the new information about existing oil fields points to the fact that some of the older ones, which are also the largest in many cases, have hit their peak pumping levels. That crude may not be easily replaced.

On the other side of the equation the rising price of oil is not meeting the normal economics of supply and demand. India, China, and other developing countries need more oil each year for infrastructure improvements and a growing number of cars and trucks on their highways. US consumption does not seem to be dropping. Gas at $3 has become part of the cost of living.

Unrest in Venezuela and Nigeria are enough to psyche the market about a very large, long-term interruption which could drive a sharp drop in supply.

With all of this as a backdrop, OPEC can point to enough reasons in the market to say that it is blameless. It is a convenient lie supported by facts which are not related to what the cartel can do on its own to help alleviate the problem.

But, with hundreds of billions of dollars hitting OPEC bank accounts each year, denying the obvious becomes part of the game.

Douglas A. McIntyre