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How Long Can OPEC Maintain Its Current Strategy?
Submitted by Nick Cunningham via OilPrice.com,
The six-month clock is up. OPEC is convening this week in Vienna, as it does every six months, to discuss and decide on how the group will coordinate.
The November 2014 meeting was one of the most widely covered in years. After leaving its collective output quota unchanged for several consecutive meetings in a row, much of the world watched for a major policy change. The glut of oil had led to a crash in prices, falling from well over $100 per barrel, down to the $70 range. As it had in the past, surely the cartel would pull the production lever downwards, switching off a million barrels per day or so in order to stop the bleeding?
That decision never came. In a move that shocked the oil markets, and enraged many of OPEC’s own members, production levels were not touched. Saudi Arabia looked into the history books and realized what happened the last time they cut production during a glut. In the 1980’s, prices did not recover, and Saudi Arabia merely lost market share and revenues.
Not eager to make the same mistake, this time they went full speed ahead, fighting for every piece of the market it could capture. Saudi Arabia has even boosted production by 700,000 barrels per day since then, increasing output to 10.3 million barrels per day as of April 2015.
As it quickly became clear, Saudi Arabia hoped to force out higher-cost producers (i.e. US shale) and maintain market share, allowing prices to eventually adjust upwards on the backs of others.
So what should we expect from OPEC’s upcoming meeting on June 5? More of the same. Having made the decision to fight it out, there is almost no reason to back off now. US shale producers have hung on longer than many anticipated. OPEC has inflicted a lot of damage across the US shale patch, but it hasn’t yet struck the deathblow that it had wanted.
Rig counts have fallen by 1,000 (more than 50 percent) since October 2014, production has largely come to halt (although not really declined), and fewer wells are being drilled. Importantly, a few smaller companies have gone bankrupt, and others are struggling under mountains of debt. That portends a larger adjustment in the months ahead, but for now, the market is in limbo.
OPEC’s strategy could still work, but will need more time. That points to a stay-the-course approach heading into the June meeting and beyond.
Still, it is not clear how long OPEC members can hold out. Many are not as well endowed as Saudi Arabia, nor do they have the massive rainy day fund that Riyadh does. Several members – most notably Venezuela and Iran – loudly called for a cut in output last time around. Their arguments didn’t win over Saudi Arabia in November, and they won’t again in June, but at some point the pressure could mount.
The Wall Street Journal reported in May that OPEC is starting to come to grips with the possibility that oil prices could remain below $100 per barrel well into the next decade, a troubling prospect for oil-producing countries that had become used to the super profits associated with three-digit oil prices, and many have budgets that only breakeven in that range.
An internal OPEC report sees oil prices at $76 per barrel in 2025. And that is the group’s most optimistic scenario. It also considers the possibility that oil drops below $50 per barrel in the 2020s. $100 oil does not figure into the group’s considerations.
OPEC disputed that it put together such a pessimistic outlook, but if the WSJ report is correct, the implications would be profound.
The WSJ believes that OPEC, under this scenario, would consider returning to production limits in order to prop up prices. If prices stayed low, the group probably would not be able to produce flat out and wait out US shale for a decade. Internal pressure would be too great.
For the June meeting, however, the Saudi strategy should carry the day. November’s meeting could be a lot more interesting though. If prices don’t recover, and US shale is not making big cut backs, the grumbling within OPEC could grow louder.
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I remember Chespeake during the nat gas dump a few years back. I look at gold miners now. As long as someone is willing to loan money or buy new stock issues, I suspect these Shale companies can drag this out for a decade if they choose.
Yep which is why I see Oil $50 to $75 for the foreseeable future. $20 or $100 very unlikely.
Goldman can outlast these rat bastards.
And what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical-commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.
What happened to peak oil? Weren't the Saudi fields nearing exhaustion?
peak oil is still here. you can tell by the little hints such as trying to get oil from sand, shale, and kilometers off shore and kilometers deep. It seems as if 'they' are trying to find more oil in more and more hard to reach places. I am guessing that the easy stuff has been discovered. Peak oil doesn't equal no oil.
Peak oilers moving the goalposts I see. It used to be that the world was running out of oil. Now the world is running out of easy oil.
Most of Central Asia and Siberia have not been explored yet.
The entire Arctic region and many deep sea areas have not been explored yet. These used to be pipe dreams but are now recoverable due to technology. In a decade, they might be considered easy stuff.
Oil at $60 can be profitable for many tarsands and very few shale operations. The problem is that most of the areas the frackers are drilling in are not profitable. Suncor is showing positive FCF for their tarsands. None of the frackers could show positive FCF even with WTI at $110.
Oil is abiotic so I don;t know about peak oil. However you can pull it out much faster the the earth can make it. That being said, the Saudia are begining to frack their fields and use a process the requires 85% less fracking fluid. You usually frack your fields when they are near dying. So one wonders.
http://www.cnbc.com/id/102691084
abiotic or NOT, you can't keep on extracting oil at a higher and higher rate forever.
"OPEC has inflicted a lot of damage across the US shale patch, but it hasn’t yet struck the deathblow"
we anticipated that this process would take many months.
but you may be confident that we continue to stand ready to provide liquidity, through loans, swaps, and other vehicles, to support this important strategic policy to further stimulate global efficiency within key market sectors
hugs,
janet, stanley, and the gang
The world economy is slowing down and you can pump all you want, but can you sell it? Brent is closing closer against WTI and even the usual scary headlines aren't driving the market very much. I think we'll see oil floating in the high 40's to mid 50's. I expect Venezuela to fall apart before much longer, which will bump the prices, but they don't produce much oil in their socialist paradise. All market sectors are showing classic chaotic oscillation that is becoming harder to control...
A whole story about oil prices and no mention of US-Russia tensions and USA's attack on energy which is Russia's main export?
Saudi Arabia is following orders from Washington in Obama's economic and political war on Russia and Putin.
SAUDI ARABIA IN OIL-PRICE WAR WITH IRAN, RUSSIA Riyadh avenging Moscow's backing of nemeses Assad, Iranhttp://www.wnd.com/2015/01/saudi-arabia-in-oil-price-war-with-iran-russia/
How Long Can OPEC Maintain Its Current Strategy?As long as Washington orders it to maintain it.
Also stupid: the perspective of Saudi trying to "take out" the shale producers when they only exist thanks to that giant sucking sound coming from the free money machine known as the Fed.
What kind of idiot would support (read, prop up) high price producers when they're in direct competition with the lowest cost producers on the planet?
Why, idiots with no skin in the game who rely upon Ole Yellen to keep the wheels turning, of course.
Some oil comes out of the ground easier than other oil...
same as it ever was...
Thank you.
I have absolutely zero idea why it seems Everyone but the consumer wants oil prices to rise. This world is even more fucked up than you think it is.
As a Canadian living on the West Coast, I can assure you that if prices for crude do not increase very soon sh.t will hit the fan not only here but in many countries all over the planet. Most oil producing nations need over $80.00 per barrel, some need over $100.00
This is not just about the people that work directly or indirectly in the oilsands, which are a lot of people, but here in Canada it affects the entire west-coast as in three provinces, but realistically, it does affect all of Canada.
Then you need to live within your means like everyone else. I want more money too but it ain't happening. Why should it be any different for anyone else. Nobody cried for me when the mexicans came in and made wages drop in the construction industry.
The West is being played for fools by OPEC. Here's the sensible answer: US and Canada, which are virtually oil-self-sufficient these days, slap an import tax on any oil from an OPEC country so that the minimum price of a barrel of oil is, say, $80. The shale and oil-sand producers in the US and Canada can start making money, the tax revenue from any imported oil can be used to pay down debt (I know, I know - I could hardly write it with a straight face either, but a man can dream, can't he?), and OPEC can f*** themselves.
$80/bbl is just half what we were paying for it seven or eight years ago, and much lower than we've paid for the last five years, so we should enjoy lower gas prices than we had (if somewhat higher than they might be if we let OPEC keep screwing with us).
I'm normally for free markets, but OPEC oil is not priced based on markets but political calculation, so why shouldn't we do the same to them?
And I want $40 a barrel so nobody is happy.
central banks should be in charge of determining the price of oil. It's worked so well before. Price controls always work. Or at least this time they will. Maybe.
murkins preaching living within their means. Individually maybe some do, but as a whole, the US is the biggest borrower in the world.
I didn't vote for none of those assholes. All I want is to be left alone and not be price gouged.
I live in Texas in Houston. Folks are loosing their jobs left and right. They are also in denile around here. It's getting pretty bad. There is a bubble in housing, apartments, and commercial real estate. It's effecting everyone we know with furloughs and families cutting back on spending etc. Energy was all the US had as a bright spot on it's economy. Now that's dead, along with all the boats from Arkansas, RV's for indiana, motor cycles from Illinois, and new furniture for North Carolina, etc them folks WOULD HAVE bought.
There are a lot of factory workers would like to have those jobs back too. Welcome to the club.
That is exactly the reason why oil rose in the first place.......big money moving in and driving up the prices (on futures) only to find out now as deflation is taking hold that demand is dropping too and so now your oil prices are stuck in a downward trend. The irony of all this is that the economy in the US is still in "recovery mode" so it will get really interesting when it finally does turn down at some point. I shudder to think what that damage to the market will look like.
TEXAS TYRANNY: WACO JUDGE AGREES TO LET MOST BIKERS GO – IF THEY SIGN A CONTRACT VOWING NOT TO SUE FOR WRONGFUL ARREST
http://washingtonweeklynews.com/texas-tyranny-waco-judge-agrees-to-let-m...
There be a shit storm a brewing!
Let them sue.
You are surprised by the "just us" system?
LOL!!!
full faith and credit.
tick tock motherfuckers...
The biker running scheme ended badly.....go figure.
Just think if the same enforcement procedures used in Waco would have been used in Baltimore.
The rhyming Reverends would have been on every media outlet (with the approval of the media outlets).
I hope they sue them for every penny the City and State have.
BofR, did you get to read the suit filed? Here's a link.
http://www.scribd.com/doc/267040628/Matthew-Clendennen-v-City-of-Waco
<Boom>. Headshot.
Seriously, those Baylol-grads will sue for just about anything, including keeping Texas A&M in the Big-12 athletic conference.
In this situation, I wish him the best. I hope he gets massive compensatory damages, and maybe a police MRAP for his suffering.
If you sue in a justice theater, you aint tryin' hard enough.
It's all the wind and solar energy that's really hurting Saudi Arabia. I think we can all agree on that.
Well that's an interesting point, if it's their strategy to keep prices low until the sun stops shining, then it sound to me like they have a sub-optimal strategy.
I'd think you were trying to be funny if I hadn't read some of your other posts. Wind energy is currently disrupting business and homes throughout GB, as there simply isn't enough juice at the right times, to the point where the government is now saying "You shouldn't expect that there will always be electricity when you plug something in". This never happens in free markets - stuff's always available, though maybe at a price you don't like - but when governments step in, it's what you expect.
dude, do you even think about what you are saying? First you say Peak oil isn't real, then you say it is. You say oil should have price controls and now you say governments screw up trying to control a market?
By the way you flip flop, are you related to John Kerry?
Funny how no one gets that the oil price drop helps the US and hurts Russia. The Saudi's may still be the strong US ally in disguise.
It may help the US government. However, it certainly does not help the financial system that blew this latest bubble and now needs expensive oil to make the math work.
Of course, given those are both abstractions, any prognosis of "help" and/or "hurt" rely fully on the perspective of the individual affected.
Can someone enlighten me since when ekm1 has disappeared?
I get no result when I searc this user.
He was here April 10th...
http://www.zerohedge.com/news/2015-04-10/feds-bad-cop-lacker-sees-substa...
https://www.google.com/?gws_rd=ssl#q=site:+zerohedge.com+ekm1
When Iran starts pumping full bore and possibly Iraq if ISIS doesn't disrupt production the prices will stay low for a long time. Way too many countries producing crude.
Well, rest assured prices will spike nicely when the 3rd One gets going. A nice boon for share buyers at this price indeed.
What happened to peak oil?
I'm a bit young to have fallen for that con. But I'm sure there's a few readers here who took it hook line and sinker. Probably even a few with their heads so far up their arses that they still believe it.
Peak oil is a reference to sweet crude availability only, most countries are pumping sour crude.
Pull your head out.
Why not whale oil?
You're bullshitting.
Peak oil is not about the price of oil or running out of oil, it's about using up the low hanging fruit. It's real otherwise they wouldn't be drilling a mile deep in the oceans or getting it out of tar sands.
They have been getting oil out of the tar sands commercialy since 1964.
Even Rod Serling understands the concept of peak oil. Skip to 31:50 if you don't want to watch the whole thing.
https://www.youtube.com/watch?v=Vj5m-F_Nbdk
What fantasy land do you live in? "Peak Oil" is a bullshit theory put forth decades ago by M. King Hubbert, who worked for Shell Oil, saying that oil production would peak in 1965 (his call in 1956), and then in 1995 (his call in 1986). Funny that world oil production in 1995 was 62 million b/d, but by 2013, was up to 77 million b/d, or a 25% increase in "peak" oil. He said nothing about 'low hanging fruit' or 'sweet vs. sour' crude, and by the time he made his 1995 prediction, the oil sands were already underway in Alberta, and deep sea drilling was commonplace.
Peak Oil is the same bs as "Man Made Climate Change", "Second hand smoke", and "Autism from Vaccines". There's one born every minute.
So you're saying there is unlimited oil? My grandkids will be glad to hear it!
I live in the fantasy land called Earth. I believe the earth is round. I believe that the earth has a finite size to it. If you take those two premises as real and realistic it's patently obvious that there is such a thing as peak oil.
I would refer you again to the Twilight Zone episode. The timing of the accurate prediction of peak oil may have changed due to advances in extraction technologies, this doesn't change the fact that the world cannot continually expand the use of fossil fuels ad infinitum.
There is a peak, which I believe we are close to. My anecdotal evidence is the lack of oil bubbling up from the ground a la Beverly Hillbillies, and multi billion dollar oil platforms to extract oil.
Oil extraction rate exceeding new discoveries .Its a matter of time and the slowdown in global growth.Most people today cannot see or care beyond tomorrow. New technology only speeds up the depletion process Price alone does not indicate supply of finite resources.Even when Iranian and more Iraq oil becomes available does not change. Your Australian lens distort the fact that it is a small world with a lot of people who consume more and more on a exponential pace.
Peak Oil is a theoretical concept. The history of the world is that as something gets scarce and expensive, technology finds a cheaper substitute.
electric motors are far more efficient on an energy in/energy out, and (drivetrain, fuel weight and payload) compared to gasoline cars. The only practical problems right now are finding batteries with enough storage, and a faster charging mechanism. When that happens - and I give it 20 years at most, probably sooner - oil demand will start to fall again, AS IT ALREADY HAS in response to higher prices. " lot of people who consume more and more on a exponential pace." What nonsense. A 25% increase in 23 years fits no educated person's idea of an 'exponential pace' (although it's technically true, if the "exponent" is really, really small).
"New technology only speeds up the depletion process" - true, in the sense that all new technologies will cause the fields to EVENTUALLY deplete faster than they would if no new technologies existed, but misleading, in that the new technologies have made recoverable reserves that were previously considered unavailable. So, in the short (and to this point, medium) term, the new technologies BY INCREASING RESERVES put the date of "Peak Oil" even farther in the future.
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Go sell your wares somewhere else. Every comment you've ever made is the same as this one!
I had always heard that the market can stay irrational longer than you can stay solvent.
I guess that applies to OPEC too.
if the OPECkers are so unhappy with the price of oil they should STOP SELLING OIL ENTIRELY until someone agrees to pay them the $100+ prices they want.
I'm still laughing at all the nutters who thought Saudi Aramco was fudging their production and reserve numbers... so, tell me, how does that large thumb they just jammed in your eye feel?
Russia was given a chance by SA to get ready for this and play along with the team... they got all uppity about it and ended up with a giant Wahhabi foot in their ass... I will continue to lol every time ZH posts its stream of daily oil up/down articles, daily action hiding the following facts of life for all except those who choose to see...
http://www.nasdaq.com/markets/crude-oil-brent.aspx?timeframe=18m
http://www.nasdaq.com/markets/crude-oil.aspx?timeframe=18m
https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=Linear&...
the truth hurts and it isn't going away any time soon... mission accomplished
Isn't this petty much how the first gulf war started? The Saudis provoke their neighbors, then run and hide behind their creepy Uncle Scam when confronted.
You didn't build that! Somebody else built that!
How long can they maintain their current strategy? If they want OIL pushed down to near single digits, quite a long time...
http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...
Jeebus, who are these prognosticators???
$76 in 10 years at a 2% annual inflation rate is equivalent to $62.35 today. It's already essentially there and the market isn't in a true equilibrium yet. Forecasting forward 10 years based on today is like forecasting the weather forward 10 years based on February temperatures and telling us it'll be that cold going forward.
WTI is already back to $60, or am I the only one who noticed? I think this is now just as low as the Saudi geniuses behind this move want things to go. And even this may not last much longer.
I expect $70 by this Xmas, $80 by end of 2016, and further is too far to predict but NOT plunging back below $60, much higher odds of going back up above $100, even with Iran back in the market, like they were ever not.
The SAUDIS are waging war against Russia on our behalf not fracking.