Kate Mackenzie Opec probably would care if oil hit $100

There has been a lot of coverage of the Kuwait Supreme Petroleum Council saying that Opec wouldn’t be alarmed if oil hits $100 a barrel – in otherwords, that the cartel is happy to let oil prices rise that high.

There’s no need to panic quite yet though: there are two reasons why Opec won’t let its production quotas destroy the nascent economic recovery – and crude remaining solidly above $100 in the near term could well do that, if you consider that was the average price in 2008.

One reason is that it is not in Opec’s own interests to do so – the last thing they want is for their customers to get so hurt by high oil prices that they find ways of using less oil, which has happened before.

The second, and related, reason is that Saudi Arabia won’t let it happen – unlike some of the smaller Opec nations, Saudi Arabia resists the prisoners’ dilemma-type scenario of neglecting quotas just to make a buck in the short term; in fact it has been known to produce less than its quota, just to offset other member countries exceeding theirs. That’s how Saudi Arabia rolls – although as Environmental Capital notes, they don’t talk about it so much, so what’s really going on with Opec is, as ever, a little fuzzy to casual onlookers.

The problem is, however, that while the developed world overall might be able to  handle oil around $100, some countries will find it harder than others. Western Europe, with only moderate reliance on road transport, might be able to withstand it and Australia, with its recession-proof commodities boom, might barely notice it. California, as we wrote yesterday, might be an example of an economy less equipped to cope.

Related links:

Who’s who of Opec