The Strait of Hormuz is the most important tanker transport route for global crude oil exports. Iran’s atomic program may trigger further sanctions and even military action from either Israel or the US. The Iranians won’t try to close the Strait of Hormuz as retaliation for EU sanctions because this would hurt Iran´s economy.
The importance of the Strait of Hormuz for global oil trade
Oil production from the Gulf countries equals roughly 29 percent of global crude oil production. Just to get a feeling for the market: When Libya´s oil production declined, which was just two percent of global production, the price of Brent increased by $20.
The pundits expect oil prices beyond $150 (some even suggest $200) if the Strait of Hormuz is closed. This is of course a serious issue for all oil speculators as what happens there can have an enormous impact; and certainly, the political situation has further deteriorated. A confrontation seems to be more likely now Continue reading
Why no one needs to pay attention to its decisions any more
OPEC members ignore the cartel´s decisions.
OPEC is deeply divided while any decision has to be unanimous.
Only Saudi Arabia has spare capacity left to move the market.
The last two OPEC meetings in June and December 2011 showed that the cartel no longer playsan active role in shaping the world.
At the first meeting in June, Saudi Arabia wanted to raise production quotas in order to boost oil production. The goal was to lower global oil prices. Even as OPEC members set production quotas and a price band between $70 and $80 back in 2008, member states simply ignored the allocated production quota and produced as much as possible. Saudi Arabia was just the exception, retaining some spare capacity. Prices had risen to $117, far away from OPEC´s target price.
So everyone expected OPEC to raise production quotas in order to adjust its policy to reality.
The meeting ended without any agreement. Saudi Arabia, Kuwait and the UAE wanted to increase production, the rest of the cartel didn´t. So the hawks (Iran, Venezuela) defeated the doves (e.g. Saudi Arabia). The Saudis decided to ignore OPEC altogether and increased their crude oil production to keep the market supplied.
The December meeting was different. Continue reading