OPEC has taken full advantage of the free market system. Members are on a path to earning nearly $1.3 trillion this year as oil prices stay relatively high into the second half of the year. The huge move up in their income has allowed the cartel brethren to build out their own infrastructures at a record pace and create larger sovereign funds to invest in relatively inexpensive financial equity in the US and UK.
According to the FT, "Opec nations earned as much in the first half of this year as they did in the whole of 2007."
While the news is good for OPEC, that may only be true for a short time.
While oil prices have come down, they are still well above where they were a year-and-a-half ago. While $3.50 gas may seem attractive compared to $4 gas, the distinction is not terribly meaningful for the US, EU, China, or India. It still sucks productivity out of any business which uses oil and gas. It still pushes inflation on the consumer.
Inflation in China hit 10.1% last month. Oil was a large component of that. The inflation will be exported through increased prices of goods. That will combine with commodities costs and tight credit to drive both economic slowing and high prices. The economy is already on thin ice. It cannot take more of a load.
OPEC may be making record money now, but it also may be helping to push the global economy into one of its darkest periods in decades. At that point, it can watch its earnings plummet.
Douglas A. McIntyre
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