OPEC and the Crude Oil live on CNBC
Regan: Venezuelan president, Hugo Chavez said today that the empire of the dollar is crashing. Well, he and the Iranian president proposed over the weekend that OPEC price oil against a basket of currencies rather than the dollar. So we're asking today, “Is OPEC more of a threat now then it has ever been in the past?” Well, to answer this one we want to bring in Adam Hewison, technical analyst of INO.com, CNBC's very own Sharon Epperson, and today's guest contributor, Vince Farrel.
Welcome to all of you. Adam, so what do you think? Should we be paying more attention to OPEC then we have in the past?
Hewison: Well this has got all the earmarks of Chavez. He's not our friend, and we have to accept that. He's using a barrel of oil as an economic weapon towards the US, that's the first point. The second point has got to be the sides aren't going to go along with it. They're not going to divest themselves of the US dollar. They've been with the US for a long time, they will continue to be with us. And, the third point is demand. We use 25% of the world's oil here in the US and we represent 5% of the population. That's not going away.
Regan: So it's an opportunity then, do you think Vince for Chavez and for Ahmadinejad to kind of gang up together against a common enemy and spout off a lot of rhetoric?
Farrel: Would you if you were another member of OPEC put your trust in these guys? I think the answer is no. I think Adam is dead right on all the points he just made, and secondly I think Venezuela's oil output is going to disappear. This guy Chavez is a nut, it's going to disappear off the world market because you need to reinvest mightily, especially down there in the Orinoco Belt which is heavy oil. Costs a lot to get out, and even more to refine. And their draining every penny out of PDVSA for his social program and putting nothing back in. And, sooner or later that's going to dry up and he's going to disappear with the sands of time.
Regan: He's certainly made life pretty tough for any American oil company trying to do anything down there in the Orinoco region, and trying to actually process this stuff and make it into oil that one can actually use.
Epperson: Well that's absolutely right Trish. And also the traders here are very concerned about if that could happen. There seems to be a lot of discourse between OPEC over this and whether or not in terms of pricing against another basket of currencies whether or not to even discuss it.
Of course there is going to be a special committee meeting about this. The issue is if it happens, they by chance were to decouple from the dollar, the acceleration of the decline of oil prices would be so great that they would be ever more of a problem then what their facing now with the falling dollar as it stands right now. It's really between a rock and a hard place here because of course OPEC members are losing money with the dollar falling.
Hewison: The price of oil going up is far greater than the decline of the dollar here, so I don't think that's necessarily the thing. You just have to look at, well two great concerns I have... one is the cold spell that's going to hit the North-East (US). I noticed it was snowing in New York today. We're going to have a very colder than normal first quarter of '08, and also demand. We've got to cut back on demand, which means we're probably going to have to build cars that get 50 mpg as opposed to 20 mpg.
Regan: Interestingly Adam, Mr. Shavez said oil could actually go to $200. I remember at OPEC in Venezuela when he said it might hit $100/barrel. It was considered a rather crazy thought back then, $200 certainly seems rather crazy right now, but...
Hewison: He's a great bluffer too, we have to understand that.
Regan: With that said I mean we are looking at it near $100 right now. What do you think the upward trend possibilities are for oil?
Hewison: Well, the great concern I have in the Middle East... Saudi has the greatest amount of oil in the world, period. That all has to come through the Straits of Hormuz. If there's a problem in the Straits of Hormuz, this is all in a volatile area. No one can predict; it's been volatile for the last 20 years, it's going to be volatile for the next 20 years. I have real concerns about the Straits of Hormuz possibly being blocked, and it can be blocked with the size of tankers they have now. So that would shoot prices up to $200 quite easily. So, Mr. Chavez may be right in that regard, but if nothing happens we should go sideways to maybe... uh. We will see $100 print on the tape with oil. There's do doubt in my mind.
Regan: When, when?
Hewison: I think in Q1 of '08.
Regan: Ok, we've got you on record.