An Interesting Weekend
The head of OPEC, Algeria's energy minister Chakib Khelil, said on Saturday that the price of oil could fall to between $70-$80 a barrel if the dollar strengthened and concerns over Iran are reduced. Hugo Chavez said while on a visit to Spain that "the price of oil needs to stabilize at around $100 per barrel" based on his view of the current market. You may remember him predicting $200 oil a month ago and $300 oil if Exxon seized Venezuelan assets again.
The comments from the OPEC chief I can believe since they have always felt there was $40 of Iran tension premium in the current price of oil. If Iran suddenly turned civil and dropped their enrichment the price of oil would definitely drop.
The comments I don't understand are those from Hugo Chavez. With his oil production falling every month he needs oil prices to stay high so he can get top prices for his very heavy crude. In a cheap market he can't give it away. Something changed and I don't know what it was. For him to suddenly start predicting $100 is not like him.
He also announced a new oil agreement with Russian oil firms. The new agreements have the Russian firms taking over production at the facilities abandoned when the U.S. firms were kicked out of Venezuela last year. Chavez hopes the Russians will boost production back to prior levels. However when you sign a deal with the devil you never know when he will claim his due. It is hard to know which of these countries can be trusted the least.
He also signed a deal with Spanish company Repsol to explore and produce up to 200,000 bpd of oil in Venezuela. Whatever oil they produce will go direct to Spain according to the agreement. Again, if Repsol is successful in generating that kind of production how long will it be before they kicked out of Venezuela?
Even more troubling for the world was a meeting held in Russia on July 14th and not reported in the mainstream press. The top honcho in Saudi Arabia, Secretary General Prince Bandar bin Sultan bin Abdulaziz and Russia's VTS agency head Mikhail Dmitriev and Vladimir Putin signed an agreement about military-technical collaboration. Saudi and Russia are the worlds #1 and #2 oil producers accounting for 19.2 million barrels per day, 22% of global production. The worrisome headline from the visit by Bandar bin Sultan was, "Both Russia and Saudi Arabia agree upon and understand each other in virtually every energy-related issue."
For the two biggest producers in the world to decide to become pals is not good news for the rest of the planet. Russia has made a real nuisance of itself the last couple years by jacking up prices to double or even triple for its energy supplies to Europe. When the countries protested Russia cut off the supplies. The world does not want Russia and Saudi Arabia joining arms and trading ideas to boost the price of oil. Saudi also recently signed a deal to buy billions in arms from Russia in addition to the $20 billion the U.S. sold them and their fellow Gulf Council members recently.
Oil prices may be trending down now but you can bet once we hit that global top in production that Russia will be right there jacking up prices just because they can. Unlike Saudi with an uneasy friendship with the U.S. Russia doesn't care about friendship. They only care about money and getting it any way they can. Ask their current target BP. The Russians are about to take over the BP portion of the TNK-BP partnership and there is nothing BP can do about it.