In a column that appeared in this space on Dec. 3, I suggested that the price of crude oil could fall to between $20 and $30 a barrel. A little over a month later, crude oil hit a price of $27.15 a barrel, not quite $20, but close enough to scare a lot of people. As the price dropped from $41 a barrel on Dec. 3 to the current level to just over $31, the devastation that I predicted for the Organization of the Petroleum Exporting Countries (OPEC) has materialized.
Late last week, the price of crude oil quickly spiked to over $34 a barrel on the rumor that Russia and Saudi Arabia were in talks to possibly cut production by 5 percent. The current surplus of supply versus demand is about 2 million barrels a day and a 5 percent reduction in just Russia's and Saudi Arabia's production alone would cut 1 million barrels out of the supply.
The rest of OPEC, especially countries like Venezuela and Nigeria, have been vocal proponents of cutting production. It would be easy for the balance of OPEC to make up the additional million barrels per day; however, Iran, which wants to bring 500,000 barrels a day, has indicated that it would not support the reduction. The New York Times over this past weekend reported that there was no substance to the rumor of possible production cuts.
When OPEC member nations on Thanksgiving 2014 decided that they were not going to cut production and that they wanted to use the existing production level to retain market share and destroyed American oil interests, I do not believe that they anticipated that they were risking their nations. While it's almost impossible to determine where the price of crude oil will be in 12 months, the International Energy Agency (IEA) reported last week that if the price of crude oil stays in the $30 to $35 range, then Russia will be bankrupt in 18 months, with Saudi Arabia following in another 18 months.
The OPEC nations did not anticipate in their Thanksgiving attack that the U.S. government would lift the 40-year ban on the exportation of crude oil. This legislation, passed by Congress in December and signed by the president, puts OPEC's survival in jeopardy. If OPEC decides to drop production by 5 percent, that American oil interest would keep the market oversupplied, thereby further reducing the revenues that the OPEC nations receive. For the first time in 40 years, control of the energy markets seems to be moving away from OPEC to the United States.
What Russia and the OPEC nations learned in the last week of January is that even a hint of a production cutback moved the price of oil almost $7 a barrel. The question is, will Russian President Vladimir Putin try and broker a deal that will in fact reduce oil production to levels blow consumption? I believe the rise and ensuing fall in the price of oil is sending a clear message to the OPEC nations: Cut production and have a possibility of surviving or keep it at this level and bet your country. The new Russian oil roulette game could have some very big losers.
Perkins is a current events commentator and contributor to The Hill. He is the author of "The Brotherhood of the Red Nile" trilogy, a fictional account of radical Islamic nuclear terrorism against the United States.