MarketWatch First Take
OPEC enters the Twilight Zone6/8/12 4:28 PM ET (MarketWatch)Print
SAN FRANCISCO (MarketWatch) – Oil ministers from the Organization of the Petroleum Exporting Countries gather in Vienna next week to survey an energy market few of them could have imagined just few weeks ago.
Few big oil importers could have imagined it, either.
There will be several hot-button issues for the group to discuss, but the hottest will be price. It always is. Read about OPEC's dilemma ahead of its June 14 meeting.
Although OPEC oil output is at its highest level since October, 2008, most of the pressure on prices is coming from the global economy, which is cooling at an alarming pace, gutting petroleum demand in the process.
At the same time, non-OPEC nations are ramping up output, with the United States leading the way. While Wall Street watches the Fed for every little sign of further quantitative easing, rising output and falling oil prices are proving the economy's most potent stimuli. They have helped narrow the nation's trade deficit by easing reliance on imported oil, which for decades has topped the nation's trade imbalance. Read more on trade gap.
It's also prompting economists to cautiously bump up their U.S. consumer spending and GDP estimates for the second half of 2012. Cheaper oil means cheaper gasoline, which in turn means more money to spend or pay down debt. It's one of the few bright spots in an otherwise very murky economy.
All this is happening not under a gung-ho, energy friendly Republican administration, but under President Barack Obama's watch. Whether Obama deserves credit for it or not, you can bet the Romney camp makes sure he receives full credit for weak energy demand rather than the rise in supply. Regardless of the political spin, it's a remarkable turn of events.
Meanwhile, a steep drop in petroleum revenue is causing a world of pain in Venezuela and Iran, a couple of OPEC members who have never hesitated to use oil as a weapon against U.S. policy. But with Iranian oil exports facing a European Union ban from July 1 if it doesn't back away from its current nuclear program, and President Hugo Chavez's government in dire need of cash, the tables have been turned.
Much can change over the next month, and probably will, but as they prepare for their June 14 meeting in Vienna, OPEC's oil ministers must feel like they're peering into the Twilight Zone, a place where economic weakness inside and outside their own ranks and production gains beyond their control will be the most powerful forces shaping their production policy in the months ahead. Weird.
-- Jim Jelter