Yesterday RealClearEnergy led with a Washington Post story by professor Jeff Colgan of American University calling OPEC a “phantom menace.” The argument was that OPEC countries contribute only 40 percent of the world oil supply and do not have cartel power. They set the price of oil only in the sense that the Electoral College convenes every four years to elect the President of the United States. OPEC is only ratifying a price already set by the market, not determining it.
But it’s best not to get too overconfident about OPEC’s supposed phantom power. Even though their contribution is less than 50 percent today, more than 75 percent of the world’s oil reserves are in OPEC nations. As the graph shows, more than half the world’s future supplies still lie in the Persian Gulf countries of the Middle East. It’s best not to forget that. Then there is Africa (Nigeria, Libya, Algeria and Angola) and Central and South America (Venezuela). To be added to that, of course, is Russia, the world’s second largest exporter, which, although not an OPEC member, is always prepared to angle for a higher price.
The United States and Canada are in pretty good shape as far as future reserves go, but the fact remains that most of the world’s consuming countries – Europe and now the rising economies of Asia – have almost no oil. As demand rises and supplies tighten, world oil will remain a seller’s market. OPEC’s prospects only get better the further we look into the future.