US "Secret" Deal With Saudis Backfires After Oil Minister Says US Should Cut First

Who could have seen this coming? With oil prices holding at 4-year lows, heavily pressuring around half of US shale production economics, the "secret" US deal (see here and here) with Saudi Arabia to crush Russia via oil over-supply in a slumping demand world appears to be backfiring rapidly for John Kerry and his strategery team. Capable of withstanding considerably lower prices for longer, Saudi Arabia's oil minister Ali al-Naimi proclaimed "no one should cut production and the market will stabilize itself," adding rather ominously (for the US economy and HY default rates), "Why should Saudi Arabia cut? The U.S. is a big producer too now. Should they cut?"

As Reuters reports,

OPEC leader Saudi Arabia signaled on Wednesday it was unlikely to push for a major change in oil output at the producer group's meeting this week, a day after Russia refused to cooperate in any production cut. Saudi Oil Minister Ali al-Naimi said he expected the oil market "to stabilize itself eventually."

...

Iranian Oil Minister Bijan Zangeneh said some OPEC members, although not Iran itself, were gearing up for a battle over market share and insisted that non-OPEC producers needed to participate in any OPEC-led output cut.

"The most important thing for all of us is the unity and solidarity of OPEC, and in this situation I believe we need to have the contribution of non-OPEC producers for managing the market," Zangeneh told reporters.

"Some OPEC members believe that this is the time where we need to defend market share ... All the experts in the market believe we have oversupply in the market and next year we will have more oversupply," he added.

Which led the Saudi Minister to comment...

"Why should Saudi Arabia cut? The U.S. is a big producer too now. Should they cut?"

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And the reaction not good - 4-year lows

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Here's who faces problems...

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With prices expected to drop to $60 on no cut, maybe the "unequivocally
good" news for the US economy from lower oil prices should be rethunk.

Comments

[gcjohns1971]

When I was a kid we used to ask what were all those giant metal see-saws we see on any drive through the country.

We used to see them all over the West.

We used to see them when driving to California.

We used to see them driving through Oklahoma, Texas, and even Colorado.

Then an amazing thing happened.  Seemingly overnight, they all stopped see-sawing in 1973. 

Totally coincidentally, I am sure, there was an OPEC production cap that year. 

Totally coincidentally, I am sure, Oil began to be priced exclusively in Dollars in 1973.  

And, again totally coincidentally, I am sure, the US Dollar's value, which had been dropping since Nixon closed the Gold Window in 1971, stabilized and began to rise. 

And, again totally coincidentally, I am sure, oil exploration turned into a job for Sea-going types rather than Land-Geologist types from that year, 1973.  

And, totally coincidentally,  from the year previous we heard for the first time about this thing called 'Terrorism' in 1972 at the Munich Olympics.  And it was used to explain why a bunch of idiots with grievances against SOME people went across the world to attack and kill OTHER people for not being sympathetic and supportive enough towards their plight.

And totally coincidentally, from that year, 1973, we suddendly cared enough about what one man with a camel did along with his family to another man with another camel and to his family, when always before we'd said, "Those guys are pretty kooky.  Why don't they just make an arrangement, live with it, and then compete economically in the market place, such that everyone - even the loser to some degree - wins.

And from that year, 1973, all the way to 2008 "Drill, baby, Drill!" was a constant refrain met by scornful expressions of enviornmental disgust and disdain.

Since 2012,  those pumps across the US country-side have begun see-sawing again.

And, AGAIN, TOTALLY COINCIDENTALLLY, since 2012, OPEC has begun expanding production, Oil is being priced in other currencies, Land-based Geologists are back in the oil game, wild-eyed men with beards are attacking other wild-eyed men with beards, rather than those who showed too little sympathy, no one wants to send troops to keep men-with-camels from killing each other, AND YES, BABY, WE ARE DRILLING.

But you tell me that, not so coincidentally, this all happened because of a Pinky-And-The-Brain plot against Russia????

Excuse me, what kind of an idiot do you take me for?