OPEC's End May Be Closer Than Imagined, Even Without Iran

NEW YORK (TheStreet) -- I was young, but I still remember when gas hit the 50-cents-a-gallon mark (aging myself, I know), along with the lines to get it. It took almost 40 years, but my ... how things have changed.

OPEC is perhaps in the worst negotiating position for Americans since forming in 1960, and definitely since the 1980s oil glut. Absent a war involving a member nation, which admittedly occurs all too frequently, the cartel is nearing a point of irrelevance.

Investors are quickly drawing conclusions that lower energy prices also mean lower gold prices. The result is fear of inflation is fading for all but the staunchest gold bugs. The SPDR Gold Trust ( GLD), one of the best inflation fear gauges, is near multi-year lows.

We have choices in tracking energy prices. Using ETFs including the United States Oil Fund ( USO) and United States Natural Gas Fund ( UNG) allow a quick examination of prices without worrying about which monthly contract to look at.

The world is experiencing a perfect storm of an almost implicit collusion working against the cartel. The largest democracy in the world, India, is experiencing torrid inflation for imported goods (which includes energy) as the exchange rate of the Indian Rupee versus the Dollar is near all-time. For India, energy costs aren't declining in the same way as the U.S. because oil weakness is more than offset by decreased purchasing power.

OPEC no longer includes the world's number one energy producer as a member. The U.S. holds the title for energy consumption, but is now also the number one energy producer. We can quickly see the impact increases of production have had on West Texas Intermediate ( WTI) compared to North Sea Brent. For most of my trading career, WTI was more expensive than Brent.

That's no longer the case, so America enjoys a wide enough price spread that it makes sense to export refined fuel products at record levels. Africa, Asia, and Latin America including Venezuela are American refined product customers. America's exporting advantage should remain in place as long as WTI remains a bargain compared to Brent. Planned and or actual production increases are occurring in non-OPEC countries all over the world.

Mexico is considering an end to state owned Pemex's oil production monopoly. Pemex production peaked in 2004 and declined by more than 20%. Changes allowing private industry to compete require a constitutional change, which in turn requires a two-thirds majority in Congress. Far from an immediate done deal, however, it appears to me that changes are more likely when not if. As annual production falls, a market based solution becomes clearer.

No conversation about world energy markets is complete without discussing the Middle Kingdom. China's voracious and growing energy appetite is offset by proven reserves. China's shale gas reserves are the largest in the world. Getting the energy out of the ground is another matter though. Much like the Bakken formation in North Dakota, China's rich shale deposits are even more removed from infrastructure and transportation networks. Those companies include: China Petrochemical ( SNP), PetroChina Co. ( PTR), Chevron ( CVX), and others.

China has made it a priority to develop domestic energy production to lessen dependency on imports. Once China begins producing faster than consuming, it is then a game set match for OPEC -- as far as dictating world production and prices.

For consumers and the world economy, it's an extraordinary thing. Lower energy prices result in higher standards of living; more people will be lifted out of poverty; increased local production-consumption creates greater efficiency and diminishes the need to protect oil tanker sea lanes.

While the production side is exciting (if you're not an OPEC member), the consumption side is making strides as well. Vehicle average fuel economy has never been higher. Electric cars produced by General Motors ( GM), Ford ( F), Tesla Motors ( TSLA), Toyota ( TM), and others, either partially or totally remove the need for petroleum-based propulsion. Additionally, natural gas powered vehicles are now reaching consumers from Ford and General Motors.

Examining the long overdue thawing of Iranian relations leads me to only one obvious conclusion. Iran's return as a world production provider simply increases supply and stability, which in turn lowers the fear premium and the true cost of energy. I would like to imagine a prosperous Iran having a lower propensity for war, but that's for them to decide.

Taken as a whole, OPEC's days aren't numbered, but its ability to dictate prices and hold consuming nations hostage as hostage is.

At the time of publication, Weinstein had no positions in securities mentioned.

Follow @RobertWeinstein

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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