Double Oil Shocker: The Possible End of OPEC… ExxonMobil’s Big Find
by Dave Fessler, Investment U’s Energy and Infrastructure Expert
Friday, June 10, 2011
Two days ago in Vienna, the 12 members of the Organization of Petroleum Exporting Countries (OPEC) spent five hours bickering, and ultimately failed to reach an agreement to increase production quotas. This was the first time that happened in 20 years.
That’s not particularly good news for motorists, who could be facing higher prices at the pump as a result. Crude traders were stunned, and sent oil prices headed north 2.7% right after the meeting.
Adding fuel to the fire was the Energy Information Administration’s report that showed U.S. crude supplies had their biggest one-week drop since December. NYMEX crude prices are now firmly back over the $100-a-barrel mark once again.
There’s a good chance they’ll be staying there this time…
T. Boone Pickens Sees $120- to $125-a-Barrel Oil
On CNBC’s “Kudlow Report,” T. Boone Pickens said he thinks crude will be in the $120- to $125-a-barrel range by the end of the year.
Saudi Oil Minister Ali al-Naimi summed it up in a nutshell: “It was one of the worst meetings we’ve ever had, [and] we were unable to reach an agreement.”
OPEC members are responsible for 40 percent of the world’s oil output. The disagreement was relatively meaningless, since most OPEC members are already cheating on their allotted quotas to the tune of 1.4 million barrels per day.
The disagreement was largely fueled by Iran and Venezuela, both of whom vehemently opposed a production increase, fearing it would lead to lower prices.
Saudi Arabia’s al-Naimi indicated his country was planning to meet the growing global demand: “Saudi Arabia is committed to supplying the needs of the market regardless of the disagreement.”
ExxonMobil’s Big Find in the Gulf
Overshadowing the OPEC mud wrestling session was another historic occasion, ExxonMobil Corporation’s (NYSE: XOM) announcement of its big new oil and gas find in the Gulf of Mexico.
Drilling its first post-moratorium wildcat exploration well in the Keathley Canyon, the company hit paydirt… bigtime. The KC919-3 well confirmed the existence of a second oil accumulation in Keathley Canyon block 919.
Steve Greenlee, president of ExxonMobil Exploration Company, had this to say regarding the find:
“We estimate a recoverable resource of more than 700 million barrels of oil equivalent (boe) combined in our Keathley Canyon blocks.
“We plan to work with our joint venture partners and other lessees in the area to determine the best way to safely develop these resources as rapidly as possible.”
This is huge news.
Largest Find in Gulf Over Last Decade
It’s also one of the largest finds in the Gulf in the last decade.
Last night on CNBC’s “Kudlow Report,” Chris Edmonds, Enerecap Partners Managing Director, weighed in on the Exxon find:
“The Exxon find is a big deal. There’s a lot of oil in the deep water Gulf of Mexico. We should be looking for it. There is a lot of oil found in oil shale, in places like the Bakken in North Dakota.
“[The problem] is that replacing oil coming from Saudi Arabia with deep water oil, and oil from the oil sands in Canada, is more expensive oil. It’s more expensive to produce and more expensive to bring out of the ground.”
The Saudis say they can produce more oil, but that remains to be tested. The most they’ve ever produced is 10 million bpd, and they’ve managed to do that three times. They’ve never done it on a sustained basis.
With global demand rising, and OPEC responsible for 40 percent of the world’s output, things could get really interesting over the course of the next year with OPEC. Could it be the end of the cartel?
The End of OPEC?
T. Boone Pickens certainly thinks so, Boone had this to say: “We are witnessing the beginning of the end of OPEC. They are producing about all they can produce. Demand is going up, and supply is barely hanging on, so you are going to see higher prices.”
With OPEC members squabbling over quotas, putting 40 percent of the world’s oil at risk in the process, the ExxonMobil Gulf find comes as good news.
But make no mistake: Oil is a finite resource, and China and India’s growing demand will most certainly keep upward pressure on prices, regardless of the state of the U.S. economy.
The best thing the United States can do is to maximize its supply while looking for alternatives to replace it. For starters, natural gas.
Good investing,
David Fessler
