OPEC and Oil Price Control- Is it a Myth?

OPEC and Oil Price Control- Is it a Myth?

 

 

• Lois had Superman
• Jane had Tarzan
• Paris Hilton has her daddy's team of lawyers working 'round the clock

And, according to the mainstream financial media, the crude oil market has OPEC, the Organization of the Petroleum Exporting Countries, to protect it from the danger of steep declines.

Which brings us squarely to the main event: News flash, oil is a long way away from the triple digit price range predicted by the usual suspects in early July: since hitting its all-time high of $78.40 on July 4, crude has crumbled over 20%.

Enter Vine-swinging hero now: On October 8, OPEC officials "informally" ahhh-ahahh-ahhnounced their decision to cut production by 4% (reducing supplies by one million barrels a day) in order to "stem the slide in oil prices."

Forget the fact that 60% of the world's oil comes from some place OTHER THAN the 11-nation cartel. Problem is, SIZE or not, OPEC has hardly proved itself in strength. On this, we recall January 2000: at the time, crude oil had just surged to $28 per barrel, its highest level since the beginning of the Persian Gulf War nine years earlier.

Needless to say, the public was starting to panic. "Gas prices" above $1.50 a gallon shouted some; "Peak Oil" is here, barked others. "Oil at $30 a barrel is in nobody's best interest," finished a January 20 Financial Times. "OEPC will try and keep the price in a sensible band."

Soon after, the OPEC secretary general got up and made this promise: "If the price of oil stays above $28 a barrel for a long time, we will take action to bring the level down to around $25."

In the four years following, oil prices nearly doubled to over $40.

Enough, for OPEC, was enough. In 2004, the cartel cited the "$20-$25 per barrel range in lieu of the undeniable fact that "stockpile levels were rising in developing countries."

Still, crude's advance was unstoppable. Prices continued to soar past $50, $60, $70 before hitting its July 4, 2006 all-time high. In OPEC's defense, one 2005 news source had this to say: "When it became apparent that forces outside of its control, not fundamentals of supply and demand, were the reason behind oil's spike, the cartel abandoned its bearish posture."

Who's to say "forces outside of its control" are not at work again now, OR that they have always been and always will be at work in the market?

Well, that's exactly we say. And, in the July 25, 2006 Elliott Wave Theorist, WE DID with this alert : "A setback of at least Primary Degree is due now. Stay away from the long side."

The 23% plunge since then speaks for itself.