OPEC's power is at an all-time high and 'the old oil order is back,' says Goldman Sachs commodities chief
- "The old oil order is back," Goldman Sachs commodities chief Jeff Currie told CNBC on Monday.
- OPEC is the only oil producer in the world with the ability to pump more crude, he noted.
OPEC's power is at an all-time high, according to Goldman Sachs' commodities chief, as the oil group considers cutting production at its meeting this week.
The Organization of the Petroleum Exporting Countries and its allies are reportedly weighing a reduction of more than 1 million barrels a day and will announce a decision Wednesday.
In an interview with CNBC on Monday, Jeff Currie, who is Goldman's global head of commodities research, said OPEC is incentivized now to trim output at it is the only oil producer in the world with space capacity,
"I like to argue that the old oil order is back," he said. "OPEC is probably more powerful than it's ever been in its 60-year history since its inception. And one of the reasons really is the fact that we have not been investing in alternative energy sources. So they're really the only game in town."
Analysts have pointed to Saudi Arabia and the UAE in particular as being the OPEC members with spare production capacity.
While the US shale boom last decade eroded OPEC's power over oil markets, domestic producers have put more focus on returning capital to shareholders in recent years instead of pumping more oil, putting the cartel back in the driver's seat.
Now it's flexing its muscle again. The reason OPEC would cut production even as the oil market remains tight with low inventories is that crude prices are down upward of 40% because investors are fleeing the market, Currie said.
If OPEC can improve oil's returns relative to other assets, then capital will start coming back to the sector, he said.
Currie also argued that the Federal Reserve is also a player in the oil market as it continues its aggressive tightening campaign.
"The financial story is controlled by the Fed, they're reducing liquidity, but the fundamental story is being driven by OPEC and they're potentially taking oil supply out of the market," he said. "So it's OPEC versus the Fed at this point right now."