Back when I started doing this channel full time, I put out a series called “Notes From The Golden Age“. Today’s video, on the defeat of OPEC, is a long delayed addition to the series. In the six minutes of the video itself, I just laid out the facts as I understand them: The fact that OPEC did its level best to raise the price of oil, and they failed. If you want to hear more about why that is, and hear some discussion of the revolution in petroleum affairs we’ve experienced over the past five years, you could do worse than this video here.
Put briefly, oil doesn’t cost what it used to. The origin of this development is probably OPEC itself. That cartel drastically reduced the oil on the market on a couple occasions in the 1970s, driving the price through the roof. Much has, quite rightly, been made of the Shale revolution in the United States. A range of technological advances has made oil extraction easier, cheaper, and viable in places that it wasn’t before. This revolution has made US production competitive with Saudi Arabia again, and caused the plummet in prices that started in mid 2014. But the Shale revolution is only the most dramatic cause.
The plummet in oil prices is the result of a range of reactions to OPEC’s obscene market power. An under-heralded one is energy efficiency. We have finally reached a point where economic growth is decoupling from growth in petrochemical use. Some of this is renewables, but more of it is the very, very unsexy business of making cars and air conditioning units run more efficiently. Another reaction to OPEC was the broadening of the search for petroleum. Coupled with Technological advances, a staggering range of countries now produce significant amounts of oil and gas. OPEC has been beaten. They largely did it to themselves.
Video Transcript after the jump…
I promise, this 300th video will involve no attempts at rapping. But I would like to jump back to one of this channel’s neglected traditions and talk about some good news. Today I’d like to celebrate the world’s victory over OPEC, the Organization of Petroleum Exporting Countries.
Fear is really important in US media and politics. Public Opinion has always been obsessed with bad guys that are coming to get us. Some of these threats are manufactured fantasy, like today’s Iran obsession, and some of them are very real, like the threat to US leadership that China will pose in a few decades time. When I was a kid, the two main threats were Communist domination by the Soviet Union, and Capitalist domination by Japan. Seriously that’s something we were worried about in the 1980s. Japan was scary. When these threats ended, we didn’t celebrate, because US economics and politics are way too rooted in the fear that feeds the US Military Industrial Complex.
So we never celebrated the end of the Cold War, or the end of the much less serious threat from Japan. And that’s also why we’re not celebrating the world’s victory over OPEC, and the new era of petroleum security. But we should celebrate it. It’s a big deal.
I last covered OPEC about a year ago, when they first agreed to restrict prices to deal with the plummeting price of oil. And I have to apologize. I got the main story right, but I got a detail wrong. I argued that there was no chance that OPEC would be able to stick to their quotas. I was wrong about that. This has a lot to do with Venezuela and Libya’s production falling due to mismanagement and war, and Saudi Arabia’s legitimate panic about the price, but that doesn’t change the fact that I was wrong. OPEC has done a better job of limiting supply than I expected. Well Done OPEC. But they failed anyway.
More than a few YouTube commenters have pointed out that prices are up from where they were before the OPEC production cut in November 2016, and way over their low point in the beginning of 2016. Oil Traders, and the OPEC countries themselves like to brag about this. But consider how much lower prices are from where they were in June of 2014, or past high points. OPEC has done its best job ever sticking to quotas. They’ve also managed to convince important non-OPEC countries like Russia and Kazakhstan to limit production as well.
If they’d managed that as recently as 2008 we’d be talking about 300 dollar a barrel oil. But this extraordinary, unprecedented effort on OPEC’s part has barely moved the needle. And that small movement has encouraged US shale producers to pick up the slack. The US rig count now stands at 747, up from 510 a year ago. OPEC’s heroic efforts to prop up the prices have mostly just functioned to give market share to US producers. OPEC’s power has been broken.
This had one sad result this month. The Trump Administration knew it could recognize Jerusalem as Israel’s capital with no real consequences. OPEC first came to prominence in the 1970’s when it chose to punish the US for its support of Israel. OPEC clearly no longer has that sort of power. This particular result may be lamentable but the end of OPEC power is a good thing. And not just because it means a freer hand for developed countries like the United States.
Every non-Petro state suffers in a world where an organization like OPEC has power, and that includes a lot more developing countries than it does developed ones. In the 1980s much of Latin America experienced a lost decade due to runaway debt. OPEC’s inflated oil prices had a lot to do with that. A world free of OPEC is a world with one less obstacle to economic development, and that is a very, very good thing.
Wow. 300 videos! It’s been quite a ride, and I’m tremendously grateful to all of you for helping me get here. To mark the occasion I’m going to take another step in my continuous battle for sustainability. I am introducing a new tier of Patreon subscriber, to honor one very generous Patron, and also to hopefully encourage others to follow suit. Going forward, every Patreon supported video will acknowledge the members of this new Producer tier, as well as a rotating cast of other patrons. Thanks so much to Marc in particular and to all of you who view these videos. I couldn’t have made it to 300 without you. Thanks for watching, please subscribe, and I’d be grateful if you checked out my crowd-funding thing on Patreon.