OPEC’s Oil Outlook

OPEC, the world’s biggest energy fraternity, slashed its output quota by 9% (2.2 million barrels per day) on December 17 in a show of supply force.

OPEC is worried about dwindling demand around the world, which they say is discounting oil too much.

But really, the world’s largest, still-legal cartel needs green energy to pull against. It reminds me of the tug-o-war scene in the 80s movie classic Revenge of the Nerds. The brutes yank as hard as they can and the geeks let go, then the Goliaths fall down.

OPEC’s cut didn’t shock markets into higher prices because the demand rope they pulled on just wasn’t there. Here’s why clean energy will stay standing on the other end of this recession.

Demand Destruction Hurts

“If you take into account all the subsidies involved in the production of a barrel of biofuels, I doubt whether anyone could make money from that with a [crude] price lower than $60 or $70,” Saudi Oil Minister Ali Al-Naimi said back in February, when oil first approached the $100 mark.

Al-Naimi cited alternative fuels such as ethanol and Canadian tar sands as reasons for a new oil price floor. Just as it’s difficult for Gulf monarchies to make money when oil is super-cheap, clean fuels look foolish when black gold is sitting in storage tanks waiting for market.

Back in 2006, when world stock markets were still in a steady bull market, a pullback below $60 per barrel made OPEC oil ministers quake in their boots.

“The Islamic Republic of Iran supports any effort by OPEC members to strengthen the oil market and return oil prices to an acceptable and logical level,” that country’s OPEC Governor Hossein Kazempour told national media at the time.

That attitude towards price maintenance remains the same today throughout the oil-producing world. Even non-OPEC countries like Russia are considering cuts in concert with the cartel. Russia and Azerbaijan, which along with Kazakhstan are the Caspian Sea basin’s major up-and-coming producers, both attended the December OPEC meeting but did not commit to major cuts.

Non-OPEC oil producers, just like clean energy companies, would stand to benefit if oil prices rise across the board.

But the recession means that OPEC can drastically reduce capacity and still may remain in surplus. Oil trading on NYMEX plunged further to a 4-year low below $40/bbl on Thursday, despite OPEC’s drastic move.

Looking for Love in All the Wrong Places

A couple of years ago, my colleagues and I scoffed at OPEC leaders and their mounting cries that they required “demand security”… because most of the world was talking about supply security.

It was around the same time that Russia, Ecuador and Venezuela were all instituting either partial or complete nationalizations of their oil industries, rewriting contracts or kicking international companies out altogether. Top consumers worried if they could depend on free-flowing supplies.

But OPEC pointed a trembling finger in the other direction.

“We need to have some sort of transparency to know what the plans are,” said the OPEC president at the time. “The security of demand is a key issue for us.”

One price spike and a financial crisis later, OPEC’s nightmare has come true; but, it’s not because clean fuel overwhelmed oil. It’s because the economy plunged and commodity prices bore the brunt.

“I hope we surprised you,” OPEC President Chekib Khelil said Wednesday, hoping his organization would shock oil markets into soaring futures. “If you’re not surprised we need to do something about it.”

It’s not that we weren’t surprised. Whether it was because of the shock of high prices this summer or the job cuts and factory closures now hitting full-speed, we’re just not consuming as much at any price.

Demand Security in Clean Energy

Is it our turn in the clean energy world to sweat about demand security? Not quite.

Triple-digit oil prices brought ethanol into the American national vocabulary (though the superior Brazilian sugar variety can and should win out). Amazingly, solar and wind power are now promoted by Chevron and Exxon, just like tobacco companies run anti-smoking commercials.

So there has been a real, lasting change in the way the world’s top energy consumers see our options, even if buying has settled.

That perspective has to be maintained through the start of Barack Obama’s presidency and through what we hope will be a late-2009 economic recovery. At that point, the political groundwork should have already been laid for a massive infrastructure buildout and real day-to-day alternative fuel access.

No one is particularly happy about the economy right now, but it’s not your duty to make oil producing countries feel better about themselves. Business in the 21st century means providing several services well (i.e. Google), not selling the same thing for 60 years and wondering why no one wants it anymore.

Besides, the heavy-handed petropolitics of major oil-producing countries have a balance in the clean energy world: an ever-increasing group of countries and companies are making sure that we get proper, localized energy solutions that will withstand demand lulls.

It’s not a quota shakedown like the game OPEC runs… We know that it’s actually competition that delivers the best results for energy consumers and investors alike. The Green Chip International stock recommendation service is racking up gains right now in global clean energy powerhouses from solar, wind, biofuel and cleantech.

That diversity gives us a big advantage over one-trick-pony fossil fuel stocks.

And since we’re not stuck to one country or industry, you’ll see that it’s easier than ever to go green globally.

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