In more very bad news for Alaska, not to mention Russia and Venezuela, The Financial Times is reporting that the Saudi oil minister, Ali al-Naimi, says that Opec won’t cut production even if oil drops to $20 a barrel.
“It is not in the interest of Opec producers to cut their production, whatever the price is,” al-Naimi is quoted in the FT as saying. “Whether it goes down to $20, $40, $50, $60, it is irrelevant.”
Opec has traditionally tried to keep prices high and the fact that it’s willing to let oil drop so low is a “dramatic policy shift” that hasn’t been seen since the 1970s, when OPEC leveraged its oil for political reasons by raising prices and causing an energy crisis.
Alaska needs oil to be at about $117 a barrel to balance the budget.
But at the same time, if there had been no OPEC there would have been no TAPS. It took a national emergency sort of mentality to settle aboriginal land claims, including hunting and fishing rights, bring investors to risk huge amounts of money, compel the Vice President to break a tie vote in the US Senate, etc. etc. A free market could not have brought the oil panic necessary to bring access to North Slope petroleum. Alaska oil would still be stranded absent OPEC, and a pipeline would only be an ongoing conversation. Perhaps OPEC is the true originator of the Permanent Fund.
As provincial and archaic as this may sound in a world of a “global economy”, should America return to the principal of tariffs to protect our domestic economy and stabilize oil prices ? What is our alternative? OPEC did this same thing in the 70s’ and destroyed our domestic oil production capability. This tactic has nothing to do with a “free market”. Garand points out that such a cartel of oil producers would not be tolerated in the United States. In an effort to level the playing field to provide opportunity to others, our government controls monopolistic behavior. (By the way Teddy Roosevelt “The Trust Buster” was a Republican).
Is OPEC subject to our anti-trust laws? Should oil, or a product refined from oil, produced by a recognized member of any illegal cartel be subject to a tariff prior to being imported into the United States?
Lastly, what makes this current situation a bit different from the 70’s is that Russia has evolved as a significant oil producer dependent on oil revenue. Russian is already suffering the economic consequences of their recent Ukraine adventure. The Saudis are now, in effect, cornering the Russian Bear which could make this situation much more “interesting” if Russia perceives this market manipulation as a legitimate act of war.
If the producers, Exxon, Conoco & BP, had formed a cartel it would not only be illegal we would see it as despicable yet we have put up with this oil pricing cartel of foreign governments (most of them dictators of one sort or another) for more than a generation. Now OPEC is telling us the burden is on us to reduce production and increase our own exports so the price can rise. Republicans are just as much to blame as Democrats although Barack Hussein Obama does bow to them (Saudi princes) and at least no one named Bush actually bowed so far as I know. But we American taxpayers are the chumps; American lives are lost trying to bring stability to that region yet OPEC runs right over the top of us.
What this tells me is that the oil companies, at the end of the day, don’t know anything more about the direction of the price of oil than I do.
As an industry, they would have been much better off under ACES than SB 21. Thank the Republicans for pushing SB 21
ACES would have been the biggest giveaway imagineable. Not only would we have collected significantly less revenue, we would also be obligated to pay millions in tax credits.
Still, many if not most of our Democratic legislators understand economics or tax law enough to grasp this equation. How sad.