It’s Official, OPEC Has Declared An Oil Price War [Seadrill Ltd, Transocean LTD, Chevron Corporation, ConocoPhillips]

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December 2, 2014 4:51pm NYSE:BNO NYSE:UCO

crudeoilKent Moors: My meetings here in Dubai are at the Burj Al Arab, the fabled “seven-star hotel” built like a huge ship’s sail on its own man-made island.


At center stage are some of the region’s top oil policy makers, including a rather impressive forty-one year old, His Excellency Suhail Mohamed Faraj Al Mazrouei.

As the Minister of Energy here in the United Arab Emirates (UAE), His Excellency occupies a key place in the center of OPEC’s oil war.

Together, these are some of the very people involved in OPEC’s recent decision to maintain current production levels.

What I’ve learned at these meetings is setting up one of the best opportunities in decades…

It’s Official, OPEC Has Declared an Oil Price War

The truth is nobody is really certain what comes next in the Persian Gulf. But a symbolic omen of sorts did hit this week.

Here in Dubai, where the desert meets the water, something very unusual occurred. It rained.

The accompanying clouds have appeared figuratively in my meetings over the past several days as well.

Given the big time difference in the weekly schedule in this part of the world, the Dubai Stock Exchange (DSE) was open on Sunday and today in advance of a two-day national holiday. That gave my meetings much more focus.

As felt elsewhere throughout the world, stocks on the DSE were hammered in the aftermath of OPEC’s decision to maintain current production levels in the face of falling oil prices.

But Dubai isn’t just focused on oil. The country is now a center for real estate, finance, and trade. The other six emirates, however, led by Abu Dhabi, are still dependent on global oil price swings.

OPEC's Impact on Oil Prices

And in the center of it all is His Excellency Suhail Mohamed Faraj Al Mazrouei, who has been the Minister of Energy for almost two years now. As happens in places like the UAE, he began his career at any early age, acquiring experience in several ministries and with the major national oil companies.

His English is impressive, as expected from a 1996 graduate of the University of Tulsa (in petroleum engineering; no surprise). And his demeanor is even more so.

His opinion reflects the swing position in OPEC – between the dominant Saudis and those members who have clamored for a cut in production to bolster the price.

This latter camp includes Nigeria, Venezuela, and especially Iran. Each of these countries needs the price of oil to be above $100 a barrel to support badly balanced budgets. Meanwhile, other members are also showing signs of concern as the oil price hovers around $70 a barrel.

All of which simply intensifies the divisive nature of last week’s decision at the OPEC session in Vienna to maintain current production levels.

The Minister was quick to emphasize the global responsibility in balancing supply and demand to avoid oil price volatility. Yet, privately he acknowledges the cartel’s objectives are now in a direct collision course with unconventional production elsewhere in the world, especially in the shale-rich United States…

The United States Is in the Saudi Crosshairs

As I’ve noted previously, there are three distinct targets involved in the Saudi-led move to maintain production levels.

One is certainly U.S. oil production. Soon, it will surpass Saudi production.

The second is the non-OPEC production from Russia, especially as it relates to competition over the Asian market.

The third is simply to keep order in what is already a deepening rift within OPEC itself.

However, His Excellency does not accept my characterization of this as an oil war. At least not publicly.

Sandwiched between Iran across the water and Saudi Arabia to the south, the UAE is used to practicing moderation. That occasionally means they simply duck, especially when U.S. policy interests are affected.

Nonetheless, His Excellency well understands that OPEC is just buying itself a few years with its current actions. With all the attention being accorded to U.S. shale and tight oil, the argument that American production is responsible for the pricing problem is a bit disingenuous.

As I’ve recently noted, the impact of shale at the moment is limited to its effect on American imports. The export of crude from the U.S. is still prohibited. However, U.S. reliance on OPEC imports has been waning for years.

Given the new-found economic impact of oil production back home, I quickly pointed out that the OPEC decision will likely give the new Congress added impetus to liberalize the very exports the cartel fears.

It is the most direct self-fulfilling prophecy imaginable in this business. Around the table, nobody disagreed.

I further suggested OPEC’s major wall is three to five years away, tops. By that time, a combination of alternative production, renewables, and redirected trade will mean the effective end of OPEC’s oil hegemony. Controlling about 40% of the world’s oil is no longer the baseball bat it once was.

Again, nobody disagreed.

So buying time is all that OPEC has left. Of course, the essential battle is far from over. This one will largely take place over Asia, the main remaining market.

Yet, in the course of the war announced last week, the United States, Russia, Europe, and much of the financial world that funds the energy conflict will hammer out a new playing field.

As it stands, I have several more days here in Dubai, followed by sessions in London with the folks who largely fund the energy world. So by the time I return to the states on Dec. 11, I’ll have a pretty clear picture of what is unfolding.

Of course, there’s one other matter of some note: How we are going to make money from all of this?

Because make no mistake, this is going to provide the biggest opportunity in energy investing in decades. And there’s no better place to be than on the ground floor.

I’ll have more on this as it develops.

Check back for my next column on OPEC’s real policy agenda.

Money MorningWritten By Kent Moors From Money Morning

We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the flattening of the world continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet.And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.


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