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Wednesday, February 11, 2015

Analyst: OPEC is Taking Risk of Ceding Control of Oil Prices to U.S. Oil Market

From The Motley Fool:
Everyone seems to have an opinion on where oil prices will go next. However, it's a debate we wouldn't be having if it wasn't for the fact that OPEC has backed away from protecting oil prices to the new role of protecting its share of the oil market by looking to squash its new rival. This ceding of control over price is why we've seen billionaires debate the return of $100 oil while OPEC's leader suggests a possible super spike to $200 a barrel if oil companies cut back too much on investment in new oil projects. 
However, amid all of the turmoil and debate one thing is clear: OPEC is walking a fine line as it's putting its members' finances at risk in order to prove a point. Further, it's at risk of permanently losing its power over prices if it waits too long to act. At least that's the view of energy infrastructure tycoon Rich Kinder, who is the founder, CEO and largest shareholder of Kinder Morgan (NYSE: KMI  ) . His recent comments on the oil market strongly suggest that by stepping away OPEC is ceding control of oil prices to the U.S. oil market. This means oil prices will be largely driven by how much American oil companies are willing to spend to drill new oil wells. Said another way, if there's money to be made it will be "drill, baby, drill" but if not they'll lay down their rigs and hold out for better prices.  
Interesting times we live in 
At the company's recent Investor Day Kinder opined on the oil market providing his thoughts based on his years of expertise in the industry. He started by saying: 
First of all, I think maybe the most important point is we are seeing a fundamental shift in power here. As we all know, OPEC has in effect abdicated its role as the force setting oil pricing in the world. They could try to reclaim that at some point. The longer they abdicate -- it's kind of like an Eastern European king after World War I; once they are gone for a while, the people get used to them not being there and it was very hard to restore the monarchy in those Eastern European countries.

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