By James Herron The U.S. political establishment usually goes to every effort to clash with oil market kingpin OPEC.
Senators and presidential candidates frequently accuse it of hurting U.S. consumers by deliberately inflating prices. A bill passed through the U.S. Senate Judiciary Committee earlier this month, that would make illegal the very existence of the exporters group, which controls a third of world oil supply.
So it was remarkable to hear U.S. President Barack Obama in a speech about energy Tuesday almost perfectly toe the OPEC line on oil prices—namely that prices are only above $100 a barrel again because of speculators. He didn’t make the populist call for OPEC to increase its oil production in order to reduce prices for hard-strapped US motorists. Instead he parroted the OPEC position that there is enough oil available to meet demand.
“It is true that a lot of what’s driving oil prices up right now is not the lack of supply. There’s enough supply,” Obama said.
“The problem is…speculators and people make various bets, and they say, you know what, we think that maybe there’s a 20 percent chance that something might happen in the Middle East that might disrupt oil supply, so we’re going to bet that oil is going to go up real high. And that spikes up prices significantly.”
It’s an appealing position that President Obama has taken. Believing that all is well in the oil market—and prices would be far lower if it weren’t for wicked speculators —is easier than acknowledging the genuinely parlous state of world oil supplies.
The stalemate in Libya probably means that 1.3 million barrels a day of the highest quality oil supply will remain off the market for many months more. OPEC kingpin Saudi Arabia is embroiled in messy uprisings in two of its neighbors, Bahrain and Yemen, and growing tensions with Iran.
Speculators are reacting to major geopolitical changes, not driving them.
“While speculators are holding record long positions in oil and are a key element in the oil rally, they react to policy inputs,” said Olivier Jakob, an analyst at Petromatrix. “It is not the speculators, but policymakers, that decided to launch a new war on an oil producing country (Libya).”
Nevertheless, parroting the scarcely credible OPEC line on speculators may be the politically smart thing to do. The leaders of OPEC countries are particularly sensitive at the moment, what with masses revolting in their own backyards. Saudi Arabia in particular is said to be irritated that the U.S. has abandoned long-time allies like former Egyptian President Hosni Mubarak and failed to support its own intervention in Bahrain.
“I would definitely say that because of Bahrain, U.S.-Saudi relations have deteriorated,” and are at their coldest since 2003, said Barclays Capital analyst Amrita Sen.
Now could be the right time to offer an olive branch to a strategic ally like Saudi Arabia.