Gustav And OPEC Conspire To Alter Oil's Math

With Gustav shutting most of the oil and gas production out of the Gulf of Mexico, it is unavoidable that prices for the commodities will rise. The US government will probably open the Strategic Oil Reserve, but that is not enough supply to cushion a long interruption in output.

The only realistic alternative available to keep crude prices in line is OPEC. The cartel produces 40% of the world’s oil. A little help from the group could tide US oil demand over for awhile, at least while domestic production comes back on line.

But, OPEC has become surly when it comes to crude prices. The oil minister from Libya remarked to Bloomberg about the upcoming OPEC meeting, “If the market continues as it is, well-supplied, if not oversupplied, no action is needed."

The definition of supply has been subjective and debated, especially over the last year, as prices spiked up. OPEC was of no visible help when oil moved above $140. There have been no statements from the organization as rigs and refineries have been shuttered by the hurricane. There probably won’t be.

While it does not seem possible that OPEC would hope to profit from a large storm cutting US capacity, that is, indeed, what is likely to happen. Winter is not that far away. Heating oil demand will start to rise within the next 60 days. The price consumers will pay for refined product will be on its way up again.

OPEC will not begin to increase shipment, but it will make more money.

Douglas A. McIntyre