Jason Bordoff, an energy expert at Columbia University Center on Global Energy Policy, argues a weaker OPEC may ultimately mean not cheaper oil, but more volatile prices. For decades OPEC and allied producers, notably Russia, have acted as market stabilisers. That system, imperfect as it is, helped keep oil mostly within a $65–80 range and underpinned America’s shale boom.
The UAE’s exit reflects both economics and geopolitics. Abu Dhabi resented production quotas that limited returns on its investments in capacity expansion, and was frustrated by Saudi Arabia’s muted support during recent Iranian attacks. Yet with the Strait of Hormuz closed, the immediate market impact is limited.
The longer-term risk is fragmentation. Saudi Arabia and the UAE possess most of OPEC’s spare production capacity. If more members defect, the cartel’s ability to smooth price swings may erode. Consumers and businesses would face sharper booms and busts, complicating investment and planning.
Mr Bordoff argues America should focus less on weakening OPEC and more on insulating itself from oil shocks: refilling the Strategic Petroleum Reserve, smoothing fuel taxes and reducing dependence on oil through efficiency standards, electric vehicles and public transport. Energy security, he suggests, is not about defeating OPEC, but about making the next oil shock hurt less.
themiDdlest on
>argues a weaker OPEC may ultimately mean not cheaper oil
Hell yeah brother.
Party-Benefit5112 on
And by us I mean oil companies
meraedra on
Cartels are bad actually, and they reduce welfare. Low energy prices are generally good for sustained economic and productivity growth, and there already exist multiple instruments that manage the price volatility of oil(futures markets and whatnot). A cartel that weaponizes energy prices for political purposes is bad, and the less the Middle Eastern theocracies cooperate(especially with RUSSIA), the better. Each of those nations needs to be dismantled one after the other after we’re done dealing with Russia and China.
Golda_M on
I may be wrong, but I don’t think OPEC has been the big factor here.
Considering the war in Russia, *and* the Gulf… energy price volatility has been *extremely* low. Compare the 2020s to the 1970s, and I think resilience is clearly *much* higher now. This even though our current wars are bigger and oil production and shipping are being aggressively targeted.
I think there are two factors: (1) more dispersed exports and (2) *way* more buffer in the form of reserve storage, pipelines and infrastructure.
I think the second is the *biggest* change, especially over the last decade. It applies even moreso to gas. China and Europe have 3-6 months worth of oil and gas stored respectively.
This trend is accelorating. Everyone is building more capacity.
OPEC gets a lot of attention because a President can fly to Riyadh and “do a deal.” Its an available political lever. But… I just don’t think it’s the biggest factor anymore.
Meanwhile, in China… and any market willing to trade with China unrestricted EVs represent 50% of new car sales. That revolution has arrived. It just hasn’t been celebrated because it arrived from China.
By 2036 or sooner the large, advanced economies will have massive buffers and personal transport will be mostly electric.
5 Comments
Jason Bordoff, an energy expert at Columbia University Center on Global Energy Policy, argues a weaker OPEC may ultimately mean not cheaper oil, but more volatile prices. For decades OPEC and allied producers, notably Russia, have acted as market stabilisers. That system, imperfect as it is, helped keep oil mostly within a $65–80 range and underpinned America’s shale boom.
The UAE’s exit reflects both economics and geopolitics. Abu Dhabi resented production quotas that limited returns on its investments in capacity expansion, and was frustrated by Saudi Arabia’s muted support during recent Iranian attacks. Yet with the Strait of Hormuz closed, the immediate market impact is limited.
The longer-term risk is fragmentation. Saudi Arabia and the UAE possess most of OPEC’s spare production capacity. If more members defect, the cartel’s ability to smooth price swings may erode. Consumers and businesses would face sharper booms and busts, complicating investment and planning.
Mr Bordoff argues America should focus less on weakening OPEC and more on insulating itself from oil shocks: refilling the Strategic Petroleum Reserve, smoothing fuel taxes and reducing dependence on oil through efficiency standards, electric vehicles and public transport. Energy security, he suggests, is not about defeating OPEC, but about making the next oil shock hurt less.
>argues a weaker OPEC may ultimately mean not cheaper oil
Hell yeah brother.
And by us I mean oil companies
Cartels are bad actually, and they reduce welfare. Low energy prices are generally good for sustained economic and productivity growth, and there already exist multiple instruments that manage the price volatility of oil(futures markets and whatnot). A cartel that weaponizes energy prices for political purposes is bad, and the less the Middle Eastern theocracies cooperate(especially with RUSSIA), the better. Each of those nations needs to be dismantled one after the other after we’re done dealing with Russia and China.
I may be wrong, but I don’t think OPEC has been the big factor here.
Considering the war in Russia, *and* the Gulf… energy price volatility has been *extremely* low. Compare the 2020s to the 1970s, and I think resilience is clearly *much* higher now. This even though our current wars are bigger and oil production and shipping are being aggressively targeted.
I think there are two factors: (1) more dispersed exports and (2) *way* more buffer in the form of reserve storage, pipelines and infrastructure.
I think the second is the *biggest* change, especially over the last decade. It applies even moreso to gas. China and Europe have 3-6 months worth of oil and gas stored respectively.
This trend is accelorating. Everyone is building more capacity.
OPEC gets a lot of attention because a President can fly to Riyadh and “do a deal.” Its an available political lever. But… I just don’t think it’s the biggest factor anymore.
Meanwhile, in China… and any market willing to trade with China unrestricted EVs represent 50% of new car sales. That revolution has arrived. It just hasn’t been celebrated because it arrived from China.
By 2036 or sooner the large, advanced economies will have massive buffers and personal transport will be mostly electric.
OPEC has run it’s course. The era is over.