Opec’s March meeting came and went this week, with hardly a bat of an eyelid from the global marketplace.
A decision unsurprisingly seen as tantamount to snooze news.
Nevertheless, there was one interesting observation made during the gathering that we thought was worth highlighting (H/T Chris Cook).
It came from Jason Schenker, president of Prestige Economics and long-time Opec meeting attendee.
As he told Reuters:
Opec is responding to growth in the same way central banks are, in some way. They don’t want to move until a nascent expansion turns into a more solid expansion, they don’t want to raise production too soon.
Comparing Opec to a central bank might not strike everyone as a sensationally illuminating comment, but bear with us.
Schenker’s point is actually pretty intuitive. What’s more, we would suggest what he’s really suggesting is that it’s Saudi Arabia, not the collective force of Opec, which is operating as a central bank.
With prices running above $80 per barrel, the incentive for other Opec members to cheat on production targets is high. Most analysts seem to agree compliance is low.
For example, as Olivier Jakob over at Petromatrix noted on Thursday:
The Algerian oil minister confirmed that “compliance was not discussed” while the more politically-correct Secretary-General stated “we tried to push, but not that much” for greater compliance. We read this as a confirmation of our expectation that at the current price level OPEC will accept that most members go to “zero compliance” and will leave it to Saudi Arabia to do the required balancing act.
Now, given the sensitivity of the global market place to high oil prices — and the potential contribution of those prices, the last time they occurred, to the global financial crisis — is it the case that Saudi Arabia has actually become the world’s de facto central bank?
What’s more, is there a mutually-agreed price band they are working within until the recovery takes hold?
The power of Saudi Arabia’s “open market operations” seem all the more striking when you consider the financialisation of commodities on a global scale, and especially over the credit crunch. It’s arguable, for example, that many cash-strapped producers were able to tap an alternative global funding by selling product forward.
Opec wary of price rises as quotas left untouched – FT
It’s not a liquidity crisis, it’s an energy crisis stupid – FT Alphaville
Introducing financial oil leasing – FT Alphaville
Opec sitting pretty, but the oil cheats could make life difficult – FT Energy Source