Oil and Money - OPEC death grip

I've been really concerned about the high oil prices. I believe that if they continue in the direction they are going it could possibly put our economy in a collapse. My heart already goes out to man or woman working above minimum wage trying to get to and from work. Most likely they have an older vehicle which is killing them on gas mileage. But, they not only have to put up with the high gas prices and low mileage, they have to deal with the cost increases on all their staples, such as groceries and clothing due to high gas prices.

Well the reason for this post is not to simply gripe about the gas issues, but to explain to you how important (or should I say unimportant) this issue is with our great (yeah, right!) friend and ally Saudi Arabia. I just recently spoke with an oil and gas consultant on a airplane from Cleveland to Nashville and we were speaking about this issue. It was his belief and mine that if Saudi and OPEC opened the wells a little more and flooded the market with oil it would drop to an equilibrium that OPEC thought was fair, like $70.00. This would literally break the back of any speculators who are sitting on $145.00 futures, sending prices completely south where they should be. Well I just happened to send an email illustrating my thoughts to the Saudi's, well let me just paste the emails here for your review.


To Whom It May Concern:

I am greatly concerned with the article I just recently read on Fox news (http://www.foxnews.com/story/0,2933,374602,00.html). King Abdullah is quoted as telling us that we have to learn to live with high prices. I am slightly shocked at that statement.

I believe that the King can make a huge impact on world supplies. I have a degree in Economics and Finance and I understand supply and demand. If the King wanted prices to drop OPEC (and Saudi Arabia) could momentarily gush the market with supplies, in essence breaking the supposed grip on the market by speculators. This is not the reason given by the IEA. Also OPEC could bring prices down by increasing supplies. To say anything else is a joke. It is supply and demand. Bring supplies up, and demand and supply will find a new equilibrium.

Its shameful that we the United States would sacrifice so much for Saudi and the Middle east in general, and get so little in return. My opinion of Saudi Arabia and OPEC has greatly diminished as prices continue to increase. The danger of bringing the world into a great depression increases everyday we see these outrageous price with oil, which closed at over $140.00 today.

I will write and urge every member of the Congress and Senate that represents me in TN to discourage any help to you for anything. Again, I’m highly disappointed in your countries views.


Alex Bash


Now I know my thoughts are scattered and I don't seem to make much sense, but I was hopping mad when I wrote this. But here is their response from an unnamed source at the embassy, who just happens to be saying it the U.S. 's fault for not having more refineries. Hmmmm our fault. Here it is.

Thank you for your e-mail Mr. Bash. The high price of gasoline is not because of a lack of oil. It is because of a lack of refining capacity. There has not been a new oil refinery built in the U.S. in over 30 years, and some of the existing ones along the Gulf coast were damaged during Hurricane Katrina. There are a lot more cars on the road today than there were 30 years ago, but refining capacity has actually gone down since then. Even if more oil were sent to the U.S. it would just sit in storage until it can be refined. Hopefully more refineries will be built soon. Best regards.

Here is my response back to them.

I have to disagree with you. The price of crude has jumped from $68.00 to $140.00 in one year.

In 1999 oil barrels were at $12.00 and gas was at just less than $1.00 a gallon, lets extrapolate that data to $140.00 oil barrels. That’s a 10+ fold increase, which would put gas prices at nearly $12.00 - $14.00 a gallon. That’s basic economics, and would seem to extrapolate to the refining costs, if it was a refinery issue.

The issue isn’t a refinery issue, that supply is being met. It’s the price of crude that you guys and OPEC are selling. Drop the price to $70.00 a barrel and I bet the price drops to $2.00 – $2.50 a gallon. If not drop the price, flood the market until the price drops to the target of $70.00, and I bet the refinery issue won’t be a problem, and the gas prices will drop with it.

Your data is not correct, and your blame is misplaced.

However, I do appreciate your return email.

On a side note, I spent 15 months stationed at the US Consulate in Dhahran and found Saudi’s to friendly and fun to speak to. However, the Saudi’s are losing any goodwill they have built up in the US and with me over the last 10 years, due to this problem. Many citizens understand economies, but unfortunately most are idiots concerning supply and demand, and will fall for the cover story you gave me. I urge you to please forward my concerns to your superiors.

Thanks,

Alex Bash

And finally their response back to me again.

Thank you for your e-mail Mr. Bash. Saudi Arabia is a member of OPEC, and it cannot take any unilateral action to increase or decrease the supply or price of oil. This has to be done in concert with all the other OPEC countries.

Oil was not $12 a barrel in 1999. Oil was about $27 a barrel in 1999. Oil was not even $12 a barrel in 1980. If we look at the price increase in the short term, it may seem like a lot, but if we look at it in aggregate, the price of oil has actually risen at a slower rate than many other commodities. How much were you paying for rent in 1980? How much were you paying for movie tickets, groceries, hair cuts or cable television?

There are many other factors which have driven up the price of oil. Speculators panicking have driven the price up dramatically. The Middle East being a volatile political area has also been a major factor – the war in Iraq specifically has been a major factor, and that is one of the reasons Saudi Arabia was against having a military conflict there.

Hopefully things will settle down in the region. In the meantime, we must all bite the bullet. Best regards.

First of all, the first statement is not true. I remember paying less than a $1.00 for a gallon of gas in 1999, and I remember OPEC clamoring to cut production because oil was too cheap at $12.00 a barrel. Well I went fact checking and I provide this link for you to review yourself. Go here.

So anyways, the fact of the matter is, our Ally Saudi Arabia could fix our dilema, but they are refusing to act, saying they must do it in a unilateral agreement with OPEC. However, Saudi is on record with OPEC saying no increase in production is merited. If you remember a month ago, President Bush was in Saudi, and they pretty much told him to pound sand when asking about oil production increases. See, here is the reason we won't see any price cuts on oil. Would you the reader prefer to sell your oil at $70.00 a barrel or $140.00 a barrel. Knowing at whatever price you put it at, people will buy it, and they will buy a lot of it. It is simple economics. I'm not a dummy, and neither are you. Oil and Money. Opec has a death grip on us, whether we want to believe it or not.

So there you have it, another reason to reach out and pray for our Arab bothers, who definetely don't have our interests at heart. Also, with their banks being flooded with U.S. money, they are able to push their false religion of hope; islam across the globe. Pray to the Lord for these people, pray that the false religion of peace be terminated and that our Lord's kingdom will come. Also as a brother and sister in Christ to each other, reach out and help a less fortunate brother somehow, someway today. As John Piper says, we should be unselfish people, giving to others in their needs. I couldn't agree more.