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Saudi Cut In Oil Price For US May Lead To Price War
Submitted by Andy Tully via OilPrice.com,
Saudi Arabia’s move to cut the cost of its oil to US customers has injected fear into the oil markets, bringing the price of OPEC crude below $80 and suggesting to some observers that the cartel is preparing for a global price war.
OPEC production has remained level despite worldwide demand, and as a result, on Nov. 5, the cartel reported that its basket price – the average price of its leading grades of crude oil – had dropped to $78.67 a barrel the day before, the lowest in about four years. And US production has reached its highest level in more than three decades, creating a buyer’s market for oil.
Saudi Arabia cut its price for US customers on Nov. 3. Meanwhile, along with Saudi Arabia, Iraq and Iran, two other major OPEC producers, also are cutting prices to Asian customers this month.
The reason for the Saudi move is a matter of some dispute. Some observers of the global oil market view the Saudi price cut to US customers as an effort to undermine the boom in American production of oil from shale.
“The market reacted to it very negatively, thinking, ‘Here we go, we’re going to have a price war in the United States,’ ” Anthony Lerner, a senior vice president of industrial commodities at brokerage R.J. O’Brien & Associates LLC, told The Wall Street Journal.
But another person familiar with the Saudi decision, whose name was not disclosed, told the newspaper that the aim was merely to lure US refiners to buy cheaper oil from Saudi Arabia and thus increase their profits.
Whatever the Saudi motivation, industry insiders and observers from OPEC officials to oil price news services view these actions as leading to a price war. In Baghdad, for example, Iraqi Oil Minister Adel Abdul Mahdi told parliament on Oct. 30 that the struggle is internal in OPEC, with members fighting one another to hold on to their shares of the petroleum market.
Meanwhile, the Oil Price Information Service (OPIS), which reports extensively on the oil trade, said in a Nov. 4 report that the Saudi move had caused a “panic” in the market.
“Global traders are in essence voting on a referendum as to whether they believe that a price war is looming among OPEC and non-OPEC producers,” the OPIS reported, according to The New York Times, “and for the moment, they are casting a ‘yes’ vote for the conflict.”
As frightening, or at least chaotic, as all this may sound, however, there are positive signs.
AAA, the US auto club, said Nov. 4 that the national average for regular gasoline had fallen to $2.97, down 6 cents from the previous week and 33 cents from the same date in October. And industrial customers including hotels, restaurants, railroads and airlines also are likely to benefit from lower fuel costs.
For now, the only losers are the oil and natural gas industries. They’ve been enjoying a kind of windfall in the past few years as they've increased exploration and production of shale oil. Now, though, their share prices are falling for fear that their profits will begin eroding.
* * *
Additionally, OPEC had some more words today:
- OPEC's El-Badri: "no target price for crude, we are concerned but not panicking about oil price"
- *OPEC SEES OIL SUPPLY AND DEMAND REASONABLE: EL-BADRI
- *OIL PRICE DECLINE IS MAINLY DUE TO SPECULATION: EL-BADRI
- *HIGHER-COST U.S. OIL UNPROFITABLE AT CURRENT PRICES: EL-BADRI
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There Will Be Blood
But first there will be oil...
Followed by a 50% off sale on all oilfields for the well lubricated.
No wonder JoKe (horseface kerry) was visiting his shreik buddies a few months ago....basically with this move, the Saudis are already showing whose side they are on...no wonder china is stockpiling oil because the saudis will fund the usa with cheap oil and charge higher prices to everyone else. again, the big loser is europe.
Time for Russia to bomb the financier of terrorism.
This headline is an understatement.
It is already a Hot War in Saudi Arabia.
Our proxiy army, ISIS, is engaging in it for us.
We armed them to do just that.
Please just do not buy the story that it is a coincidence.
It is not.
I remember being taught that multiple producers competing against each other to improve quality and lower prices for consumers was a good thing.
Silly me...
Then suddenly, we were all made into Keynesians, whether we liked it or not.
Did you hear? They don't do it that way anymore. It's like gold and silver...the less real supply there is of the phyzz, the more paper they push to drive the "prices" lower.
It's all the rage these days.
HOLY SHIT!
Banner pic is from Strategy & Tactics issue #52, which included the game, "Oil War".
Either one of the Tylers is an old-school hard core wargaming geek, or doing a google image search of the phrase "oil war" picks up some pretty curious results.
http://www.amazon.com/STRATEGY-TACTICS-52-Oil-War/dp/B00404RACI
more likely they just googled it and picked an image they liked.
Frackers about to get fracked.
The "shale revolution" was financed with leveraged stock offerings and expensive buyouts as well as with very expensive patent technology, etc!!
It was all created on the "promise" of $150-$200 oil just around the corner and $110-125 minimum to maintain stronger profit margins!
So now we are at $78 heading for $50 at which time the whole industry will need a bailout or go bankrupt and Saudis will be buy it all for pennies on the dollar and shutter the whole fucking industry!!
Ain't America brilliant??
"Renewable Life", I believe there is something in what you say. Surely the huge capital investment up front to "frack" a well must mean those putting up the cash are thinking of long term pricing above $100 for ever! The wells are not like conventional well that act as straws to blled a field dry. Fracking can only open up so much shale within the balst zone. That means long term the straw begins to suck dry rock. How fast this happens is hotly debated, mostly on a political basis, not a scientific one.
Saudi can really grab frackers by the balls till they scream by holding oil at $80 0r lower. Come on folks, look how expensive fracking is, look how fast well lose production, they can't pay for leases, eqipment, labor, transport, water, chemical, truck transoprt and rail cars out. When Saudi just turns a taps and more flows. Saudi is driving the car, frackers are the dog biting at the tires. It is American to believe fracking has made America the world top oil producers. Well, at what price, how long does that oil flow. I think fracking is a good oil source as regular wells and production declines, but for now, fackers are vulnerable to conventional. And Saudi might own the fracking companies before this is over.
Jack, a lot of people may agree with you, but Harold Hamm, CEO and 2/3rd owner of Continental Resources sure isn't one of them.
In one of the ballsyest moves ever in the he oil world, he is shunning all hedges on his company's future production, betting BIG TIME that prices will rebound.
The next few months should be real interesting.
Here's the current global oil-economy breakdown by Gail Tverberg aka "Gail the Actuary"
http://www.resilience.org/stories/2014-11-06/oil-price-slide-no-good-way...
Stupidest fucking story I've ever read. I want my 2 minutes back.
Newsboy, Ms. Tverberg is an extremely bright, highly informed individual who - similar to her defunct TOD peers - has been shown to be in error over and over again. A quick scan of just about any predictive article from The Oil Drum from a few years back shows this.
For decades, Saudi Arabia has sold millions of barrels of oil a day at cut-rate prices to the US in return for protecting the corrupt Saudi monarchy.
Once Russia is brought to heel and the forthcoming coup and oil privatization in Venezuela is complete the price will shoot to $200
The reason for the Saudi move is a matter of some dispute.
it is the economy, stoopid
.... and a 50-50 possible nuclear agreement with Iran, which would ease crude exporting sanctions on Tehran
http://www.reuters.com/article/2014/11/06/markets-oil-idUSL4N0SW39N20141106
BOOM??
CRB near 4 yr low concurs on economy
lower oil will shut down marginal US projects
cutting capex
layoffs
capex!? haha. now that's funny. haven't heard that one in a while... capex.
Instead of buying US food commodities and sticking it in silos why doesn't the US government buy US oil instead?
was that rhetorical?
IRS Admits to Court it Hasn’t Searched for Missing Lerner Emails - Judicial Watch
Interesting the Rockefeller family just divested its oil interests...
Really? Can you cite a source? Does this mean the cold fusion/zero-point energy gimp will finally be unleashed from the cellar?
SImple google search turned up this
http://www.theguardian.com/environment/2014/sep/22/rockefeller-heirs-div...
"Does this mean the cold fusion/zero-point energy gimp will finally be unleashed from the cellar?"
Mmmmmmmaaaaaybe... check this link out. Looks like Andrea Rossi's E-Cat just might be the real deal.
http://ecat.com/news/ecat-test-report-2014-validates-rossi-effect
http://www.bloomberg.com/news/2014-09-22/companies-pledging-action-as-le...
Rockefellers bailed on oil a week before it started to nosedive!
Looks like they bailed on Coal, mostly.
Go to the Rockefeller Foundation website,
Its there, I checked it.
Saudi is going to bust up this shale euphoria by making the investors go bust, then come in and buy all those properties for pennies on the dollar. They are doing the same shit as every banker created disaster ala JP Morgan and co way back in the day.
Leverage is a bitch. Crazy to think that wealth producing companies all rely upon it anymore.
Or maybe real war
Recommended reading:
http://gordontlong.com/Articles/Article-2014-11-MACRO_INSIGHTS-The_Crony_Tribute_System.pdf
Is this another round of unintended consequences?
There is a man called Andrew Hall from Philbro (ex sub of Citi now apparently of Occidental) who is deep in Shale Oil plays.
It will be interesting to see how he walks this line, as king of Oil trading plays in the past, as this Saud Shale war hottens up.
Andrew Hall of Philbro, the man to watch ?
...and I will still refuse to complain about cheap diesel. Bring it!
Indeed, but it's a real bitch-slap when they start ratcheting up again. Oh the days of filling the F-250 Powerstroke at $1.49/gal...
cheap oil - yay! cheap gold :(
I see a 'well-oiled' machine of VLCC's rotating in a round-the-clock loop from Chinese ports to the gulf.
Well if the fracking chumps want to play the tough guy ... let's take it lower!
Saudi Flexing Met With Crickets by U.S. Shale Frackers http://www.bloomberg.com/news/print/2014-11-05/saudi-flexing-met-with-cr...
It all comes down to who's closer to the free-money fountain.
You have got a point there.
According to the publicity the Eagle Ford (South Texas) producers are putting out, they need $50-$60 per bbl. to operate.
http://eaglefordshale.com/news/what-is-breakeven-oil-price-in-the-eagle-...
A Mexican standoff between the U.S., Russia, and the Saudis, and the Saudis' made the mistake of shooting first, at Russia?
http://en.wikipedia.org/wiki/Mexican_standoff
"Hand me the popcorn, Ethyl!"
blood in the streets, HOORay
Not in the NG market, it's up 5% today.
Anyone notice NG was up over 5% today and it's still climbing? Anyone wonder why?
Anyone forget what the main target of fracking was to begin with?
Don't worry a bit about fracking in the US.
The loveable Saudi's have announced they are comfortable with 55-60 bbl oil for the next few years if that is what it takes and they say they are positioned to live with that level of diminished profit for years.. to help the world economy of course..
..wonder what Iran and Russia has to say about that?- sounds like something that normally leads to military action... wouldn't surprise me to find some Saudi oil fields glassed over if this continues.
Considering that $80+ is the minimum required price for the Saudi royals to maintain the balance of power by keeping the masses subdued with freebies (any less than that means curtailing goodies shortly followed by royal heads rolling down the streets), I doubt the price of oil will stay in the $70's for long.
Unless they oncrease production and they do have savongs like a large chink of the stock market in major countries.
If I were the Russkies, I would buy my oil off the futures market and deliver that to my customers. Then just cap the Russian wells for the time when the market returns to reality
Pay for it with dolars and deman ruble for it, when you sell it back to the market. funny, I mentioned a senario just like that taking place when this started a few weeks ago. Some said it wouldnt happen, others said it owuld be an end game scenario.
Fight! Fight! Fight! Fight!
The Cartel is chicken scared and running for it's life .
Godzilla is coming stomping out of Japan
Chickens coming home to roost .
Maybe just dinosaurs
Think positively .
http://andreswhy.blogspot.com/2014/10/dinosaur-death-by-dwarfism.html
On the other toe ,
Wait a bit .
This baby is still live and kicking .
No need to bury a lethargic economy .
Just give a kickstart , starting with the politicians .
And it does not need a stimulus now the little monetary tiff between Japan and US has ended (sort of)
This is good !
Taking in each other's washing is working .
See
https://www.academia.edu/9160541/Laundry_Economics_
or
http://andreswhy.blogspot.com/2014/11/laundry-economics.html
"The reason for the Saudi move is a matter of some dispute. Some observers of the global oil market view the Saudi price cut to US customers as an effort to undermine the boom in American production of oil from shale."...
And just what was the U.S. reason for invading and destroying Iraq, Libya, Syria, Yemen, Sudan and now Ukraine?...
Could have saved all of that cost on the logisitics of moving military through the ME, Africa and Europe and just focused on "shale development" imagine where we might be right now?
We should have fucking nuked "tent city" Riyadh back in 1973 with the oil embargo which would have roughly killed about 5 million Wahabi(s), then turned around for that mistaken identity called the U.S.S. Liberty and sent a boomer into the Med, retuned the favor and said oops!... really sorry!... mistake back at ya... and "called it a day"!
I'll guarantee you one thing... We wouldn't have had a 9/11 and 5 dancing Zionist Yids in Jersey 13 years ago if we had followed through back in '73 with those two!!!
" And just what was the U.S. reason for invading and destroying Iraq, Libya, Syria, Yemen, Sudan and now Ukraine?..."
All good points Captain Nemo. Destroying oil producing nations seems to be a fixation of US foreign policy. Aiding the Zionest entity is also a fixation of US foreign policy. Many times the two are in agreement.
Israel is expected to develop Palistines's off shore gas reserves. Claiming the great state of Israel owns that gas, due to god having given the jew a special cut of the land there. One aimed at giving Zion the gas rights.
The thing that has made Washington DC the focus of evil in the modern world is the control of Zion over most every US foreign and war policy. In Ukraine, Jewish Oligarchs are waiting with their hands out for the American backed Ukrainian army to conquer the lands around the North adn west of Novorussia, where the fracking wells are planned. That is why the tanks rolled today, for Kiev to get the fracking leases back into Jewish Oligarchs hands. Yet the stupid Ukie nazis who are doing the fighting do not even know why they died today, burned alive in their tanks as the rebels burned them one after the other. Not a nice way to die, and god knows a pretty horrible reason to die! So that dual Israeli / Ukrainian Oligarchs can cash in on fracking using American fracking firms. I find Nazis fighting for Jewish Oligarchs wealth expansion pretty damn funny. When the Naiz tank driver see the flash of an anti tank guided missile streaking for his vechicle across the fields, he can reflect in those last seconds what a glorious way to die. Putting fracking land and more gold into the pockets of Israeli Oligarchs and American fracking companies.
Surely some of the refined products can be re exported to Europe where they are not cutting prices. How could they cut prices significantly in US without it spilling over?
Yea....they just don't want us to nuke Iran....you know the wind blows
Well...the election is over....kiss that cheap gas good-bye
Low pricing is hurting the peripheral smaller companies that borrowed heavily to jump into fracking. Many will likely go under, cheering up all the tree hugging environmentalists. Then the prices will be hiked back up by the Sauds, but the competition will be thinned out and far less effective. Prices can stay high. Mission accomplished.
That appears to be the case. It looks like a win win for the house of Saudi crippling both the Russians and the small US producers at the Bakken and Eagle Ford plays.
Also, from what I understand there are far less speculators in the oil market making it prone to supply and demand shocks. We shall see in a short time.
Oh no!
Competition leading to lower prices!
The horror!
The horror!
Yes, old John D, would be rolling over in his grave.
Hopefully Vlad and the Russian people are well lubricated for the reaming they've been getting.
It's a bummer when your primary export sells at 20-30% less than you'd become accustomed to.
keep it under ground. save fracking for when the world goes mad max. peak oil is becoming like a ufo story out of project blue book. geesh.
Nobody really has any idea of what fracing really is do they? It's like it's something new. I've been in the oilpatch over 20 yrs, and every well I've ever seen drilled has been frac'd. You basically shoot 'bullets' into the payzone a mile underground that create a small crack to allow the oil to flow better into the wellbore. Any of the shallow gas that's taken out doesn't need any frac, as the zone is porous enough already. I've seen the shows where people's water is starting on fire, maybe a freak of nature, I don't know, but could be like the oilsands (which is actually cleaning up the oil that is leaking into rivers), a natural occuring oil on the surface. People think the oilsands are so horrible to the environment. A bit, it takes alot of heat to get it out, but if everyone is so worried about that, why are you driving? Or heating your house? Or using plastic, or tv's, or computers? Nobody seems to mind that. I guess I'm going on and on, but really bewildered why everyone is talking about this 'new' frac jobs that seem to be killling everyone. Look up a company called fracmaster and see when they started. And there's no 'k' on the end because it's short for fracture, fuc.
you cut me .... i cut you and now we stand and watch to see who dies first.... WINNER
WHAT IS THE IMPLICAITON OF CHEAP OIL...
well if we dont NEED middle esat oil any more there goes the biggest chunk of the military industrial complex active war machine... and a big part of the ussa economy (jobs)... however we do have to offset ciina and russia buildup..
but not to worry it has been replaced by the reactivaiton of the COLD WAR... thanks for playing your part Vlad..
So the world economy will adjust to cheap oil and nothing will change... because they will still TAX THE LIVING SHIT OUT OF YOU AT THE PUMP AND THAT'S A FACT...