Tags: OPEC | Russia | oil | Saudi Arabia

12 People Who Influence the Oil Market

By    |   Monday, 08 December 2014 08:26 AM

These days, Wall Street is typically blamed for what oil prices do. It's quite hysterical really. Why? Because they could only dream of being that powerful.

Wall Street has never been able to create uptrends or downtrends in oil's price. They've just been able to "ride the trend" that's already in place.

There are forces much bigger than them that create the actual up and down trends in oil's price. There are two main factors. The first one is the demand for oil. No one particular group controls that because that is dependent upon how the entire global economy is doing.

If the global economy is doing great, then it increases the demand upon the supplies of oil and if the global economy is doing worse, then its decreases the demand placed upon the supplies of oil.

However, that's the demand side of the equation. In addition to that, there's the supply side of the equation. While there are many participants who make up the group that controls the supply of oil, there's a very powerful group of 12 countries that join together to control 40 percent of the world's supplies.

They're better known as OPEC (the Organization of the Petroleum Exporting Countries).
OPEC was founded in Bagdad, Iraq back in 1960. It had five founding members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.

These days, there are seven more members to OPEC. Qatar joined in 1961, Libya joined in 1962, the United Arab Emirates (UAE) joined in 1967, Algeria joined in 1969, Nigeria joined in 1971, Ecuador joined in 1973 and Angola joined in 2007. (Indonesia and Gabon used to be a part of OPEC, but they terminated their memberships in 2009 and 1995, respectively).

Youcef Yousfi from Algeria, Jose Maria Botelho de Vasconcelos from Angola, Pedro Merizalde from Ecuador, Bijan Namdar Zangeneh from Iran, Adel Abdul-Mehdi from Iraq, Ali al-Omair of Kuwait, Abdulrahman Ben Yezza from Libya, Diezani Alison-Madueke from Nigeria (who is the newly elected president of OPEC), Mohammed bin Saleh Al-Sada from Qatar, Ali Al-Naimi from Saudi Arabia, Suhail Al Mazrouei from the UAE and Asdrubal Chavez from Venezuela are 12 of the most powerful people in the world who most people will never know.

These 11 men and one woman are the people who have more influence over the price of oil than any other group in the world. Even they don't "set" the price of oil. If they could, they'd always keep oil right at just the price they need to meet their fiscal budgets.

However, they collectively do influence the oil market in the overall market that they want it to go by collectively deciding to cut oil production or to increase it.

Now, with that said, even though there are 12 powerful members, Saudi Arabia has the most say in what OPEC does. And right now, Saudi Arabia (and therefore OPEC) wants a lot of oil on the market.

Why? There are a couple of reasons. First, there's no better way to punish Russia for its recent actions than to stick it to them where it hurts the most . . . in their pocketbook, as they drive the price of oil down. The drop in oil's price (one of their biggest exports) will hit them faster and harder than the sanctions that have already been imposed.

Second, the higher the price of oil goes, the more the U.S. shale oil drillers will pump, which could potentially give them more market share. A way to help prevent the U.S. from pumping more oil is to drive down the price to where it's not as profitable for them to step on the gas pedal and pump a ton of oil.

From what I've read, Saudi Arabia can play this game for up to a year, but not likely longer. That's when it would really start to affect them.

However, one year of $60 to $70 per barrel oil would take Russia behind the woodshed since it need $100 oil to make its budgets. If oil were kept low for that long, it would likely put Russia into a recession, which would cause further pain.

Also, Russia's ruble is dropping like a rock too now because of all of the sanctions and the impact that low oil prices are having on Russia's economy. That could cause a lot of unrest among Russia's citizens.

OPEC next meets on June 5 in Vienna. It will be interesting to see what they do then. There was pressure for a cut in oil production this time from Venezuela and seven other oil ministers.

But Saudi Arabia had enough pull with several other members that there was not a majority established for the cut. Therefore, oil output remained the same.

But some of these oil ministers who wanted the cut may get their wishes next time. They're already bleeding from low oil prices because many of them need $100+ per barrel oil.

Right now, they're making budget cuts to accommodate lower oil prices. But in doing so, it could mean that they have to cut benefits to their citizens. And when they do, that could stir up Mid East riots again. They can't afford to let that happen again . . . so my guess is, the next time they meet in June, they'll cut oil production.

God bless!

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust.
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These days, Wall Street is typically blamed for what oil prices do. It's quite hysterical really. Why? Because they could only dream of being that powerful.
OPEC, Russia, oil, Saudi Arabia
Monday, 08 December 2014 08:26 AM
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