Oil – A Vibrant Economic Force

Wanda Jablonski, perhaps the most economically influential woman of the past century, played an integral part in the creation of OPEC, the Organization of the Petroleum Exporting Countries. Ironically, she was the daughter of a Standard Oil Executive and the creation of OPEC brought down the American and British control of the world’s major oil fields.

As a journalist in 1945 she learned that Venezuelan oil minister Juan Pablo Perez Alfonzo was going to nationalize the oil fields. With this story and with other connections in the oil industry through her father, she went on create the Petroleum Intelligence Weekly, one of the most influential and valuable privately held journals in the world.

In 1956 she met Abdullah Tariki, the Saudi oil minister. Like Alfonzo, he hated the fact that foreign oil companies were operating in his country and controlling the production, prices and royalties paid to the host nations. Jablonski introduced the two men and a few years later at the first Arab Petroleum Congress, she invited them to a private meeting where they discussed how they could recapture their nations resources and take control of the world’s largest known oil fields. Jablonski cautioned the Western oil executives in 1960 when the major oil companies sought to cut prices and royalties again, but her warnings went and OPEC was born.

The ensuing decades not only allowed the Bedouin tribesmen to dictate oil prices and production, but essentially to control the world economy, and they became the richest people in the world with fortunes in excess of $10 trillion. The boom and busts of the 70’s, 80’s and 90’s were controlled by oil, eventually leading to infighting and real wars over the oil fields. The US military was sent in to protect the Saudi oil fields in the 1990’s and later to secure the supplies in Iraq. The cartel held power over the world.

Russian, Canadian and massive US finds, along with drilling andextraction technology enhancements have helped reduce the strength of the OPEC cartel. While OPEC nations still produce about 40% of the global supply, Russia contributes 12% with the potential to provide more. If OPEC tries to cut production in order to drive prices up, it will need the cooperation of Russia and Iran, which is unlikely. Further hampering an OPEC price increase via reduced supply is the cost of production with respect to the availability of easily extracted oil, and excess capacity, here in the USA.

The abundance of oil in the Permian Basin has caused land prices to surge over $60,000 per acre, which is 50 times higher than four years ago, and 10 times higher than in the Bakken today. With land costs rising, Bloomberg reports that some companies are starting to look elsewhere, which could breathe new life into the Bakken and other shale basin reserves.

  1. Below $50 per barrel, 3 of the 4 most efficient production and capacity areas are in the USA: 1) Permian Basin in Texas/ New Mexico, 2) Bone Spring and 4) Eagle Ford, both in Texas. The third most prolific region is in Saudi Arabia. At $50-$60 per barrel, the Brazil Deepwater, Canadian Oil Sands and the ND Bakken shale basin become profitable.
  2. While worldwide demand is constantly increasing, there is excess supply available. We currently have record amounts of oil in storage, more than at any time in the past 30 years. Storage tanks are full and many tanker ships are being used for excess supply.
  3. There are more than 4,100 drilled but not tapped wells in the USA according to the Energy Information Administration. This represents a huge and ready supply if needed.
  4. Technology such as horizontal drilling, fracking, and deep water extraction have driven production costs down and found more oil. This past fall, in West Texas, a massive 75 trillion cubic feet of natural gas and 3 billion barrels of oil were discovered. World demand is about 98 million barrels per day.