From yesterday’s Congressional testimony of Gal Luft of the Institute for the Analysis of Global Security:
There are many reasons for the current oil crisis. Strong demand in developing Asia, speculation, geological decline and malevolent disruptions have all contributed their share. But by far, the main culprit is OPEC’s reluctance to ramp up production.
The cartel owns 78 per cent of the world’s proven reserves and produces about 40 per cent of its oil production. In 1973, OPEC produced 30mbd, while non-OPEC produced 25mbd. Today, OPEC produces 32mbd while non-OPEC production is close to 45mbd. In other words, OPEC today produces almost as much oil as it did 35 years ago while the world global demand for oil has nearly doubled.
Clearly it is not in OPEC’s interest to provide relief to the struggling global economy. The cartel enjoys a vertical monopoly of the world vehicle fuel supply, and it is currently at the receiving end of the biggest transfer of wealth in human history.
To understand the magnitude of the forces in play it is instructive to visualise the scale of OPEC’s wealth in comparison to that of consuming countries: imagine that OPEC members are corporations and a barrel of oil is a share. At $125 oil, OPEC’s market capitalisation based on its proven reserves stands today at roughly $137 trillion. This is roughly equivalent to the value of the world’s total financial assets–stocks, bonds, other equities, government and corporate debt and bank deposits–or roughly three times the market capitalisation of all the companies traded in the world’s top 27 stock markets.
Such monumental wealth potential will translate into unprecedented buying power for the oil countries. For demonstration sake, at $200 oil OPEC could potentially buy Bank of America in one month worth of production, Apple Computer in a week and General Motors in just 3 days. It would take less than two years of production for OPEC to own a 20 per cent stake (which essentially ensures a voting block in most corporations) in every S&P 500 company.