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Saudis Believe They Are Winning The Oil Price War
Submitted by Andy Tully via OilPrice.com,
It’s almost a foregone conclusion that OPEC won’t cut its production levels at its June 5 meeting in Vienna. Anyone needing strong evidence, if not proof, of this need only listen to Ali al-Naimi, the architect of the cartel’s effort to reclaim market share.
In fact, some observers say OPEC not only won’t cut overall production levels from 30 million barrels a day to shore up prices, but may even increase them.
It’s important to remember that shoring up oil prices is not the highest priority on al-Naimi’s list right now. While some OPEC members may have trouble making ends meet, wealthier Gulf Arab states can withstand lower revenues. This is especially true for Saudi Arabia, which has currency reserves of nearly $750 billion.
Instead, the strategy was a price war against non-OPEC members who were ramping up production, particularly those in the United States exploiting the boom in shale oil. The question, posed to the Saudi minister when he arrived June 1 in Vienna in advance of the cartel’s meeting, was whether that strategy was working.
“The answer is yes,” al-Naimi replied. “Demand is picking up, supply is slowing.”
This isn’t just wishful thinking. OPEC is, in fact, gradually reclaiming its market share, according to a June 2 report from Barclays. It said that the cartel captured an average market share of 33 percent in April, up by 1 percentage point from the same month last year, but still 35 percent below the share it controlled in the middle of 2012. Part of this recent growth is attributable to increased sales to China.
The comment by the Saudi oil minister can only be interpreted as a sign that a production cut isn’t going to happen, according to Gareth Lewis-Davies, an energy strategist at the Paris-based financial services company BNP Paribas.
“[Al-Naimi] said that Saudi strategy is working, which suggests that they therefore would like to continue with that policy,” Lewis-Davies told Bloomberg on June 2. “They’re playing a longer game that requires prices to remain at or around current levels for longer.”
The reason is that many oil companies, particularly those who extract oil from shale, have higher production costs, primarily because of complex and expensive fracking, and a long stretch of lower fuel prices could cut deeply into their profits.
In fact some observers believe OPEC, under al-Naimi’s influence, may intensify its strategy. One, Olivier Jakob, an energy analyst at Petromatrix, said the cartel might raise its output cap to 30.5 million barrels a day, reflecting today’s actual production levels.
This makes sense to the consultancy JBC Energy in Vienna. It concludes that if every OPEC member is producing as much oil as it can, it would send a powerful message to non-OPEC members, especially producers of shale oil. It also said the move would “put the organization back into the driving seat, following some commentators’ doubts of its relevance after the last meeting” on Nov. 27.
Al-Naimi’s comments, combined with a slight drop in the value of the U.S. dollar, caused the price of Brent and West Texas Intermediate crude to inch up. The price of both types of oil crashed in the second half of 2014 because of the energy glut. Now the Saudi plan to reclaim market share has cut into U.S. oil production, with a 60 percent decline in drilling rigs.
So al-Naimi’s assessment of his strategy seems to be correct: the approach is working, and it would be beneficial for OPEC if the strategy weren’t abandoned at the organization’s June 5 meeting.
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What price war? Everyone is on the same side, with the same boss.
More putin squeezing, shale is obfuscation
If they truly know the art of price wars.....then any released "official" production numbers are just a lie anyway, and the real production will never be revealed.
the saudis know they are going to be overthrown, that's why they are pumping like its going out of style,
because they are. notice how we haven't heard any great success story out of their neighbor yemen?
because there isn't one.
The Apex Globalists are in the driver's seat and the Saudis have been very good lapdogs. Production levels are decided by TPTB.
If KSA experiences some domestic turmoil, it will be engineered as cover to remold the region. Clearly, the Saudi oligarchs have been given a heads up that major changes are headed their way, explaining how it came to pass shortly BEFORE the price of oil began to plummet they hurriedly rounded up and deported over a million of low level foreign workers with plans to deport another million in the following months as reported by The Guardian (Labour crackdown drives out 2 million...).
theguardian (dot) com/world/2013/nov/29/saudi-arabia-foreign-labour-crackdown-migrants
The House of Saud knows that war is coming. Iran's apocalyptic Shiite religion says that when the King of Saud dies (just happened) it's game on. The Saud's are preparing and it's going to take a lot of money not only for weapons, but they simply don't have the population numbers to fight off Iran let alone the ability. So, it's going to take even more $$ to buy friends and allies.
And the US/Saud relationship? I wonder how they see it right about now since we are basically giving Iraq to our 'other' new allies, Iran.
You only need superior numbers for a ground war. An air war, superior tech all the way. Any tech advantage can be huge, if you have it and the enemy does not - night vision, GPS, stealth. Money is more important than manpower. Too bad the Iranians can hack the drones already, seems a much better way to keep skilled pilots alive and operating.
ROTHSCHILD
consider this a siblings spat
Oill? 30!
When? 2016
More:
http://tersee.com/#!q=oil+&t=text
There's always a new Tesla. There. Problem solved!
Energy will soon be free. Carbon tax is the killer. When the carbon tax bankrupts the world, no energy will be needed. Then a globall cooling tax will kick in.
Global warming is a fraud.
Stupid is as Stupid says as Stupid writes.
Yes, the elites will never try to lie to us, print funny money push Lysenkoism or take advantage of their control of all mass media, never happen.. You keep smoking that crack son its gonna rot your brain..
Poor guy is just projecting his own inadequacies onto others. Give him a break, will ya? He knows not what he does. ;)
This is the kind of war I can get behind. Keep "winning" as long as you like. I'll just sit here and suffer with lower energy prices.
yea, boo hoo so will I
NYT: Laid Off Disney Employees Made to Train Foreign Replacements
Many of the laid off employees were subsequently required to train their replacements.
“I just couldn’t believe they could fly people in to sit at our desks and take over our jobs exactly,” one former worker, an American in his 40s, told The Times. “It was so humiliating to train somebody else to take over your job. I still can’t grasp it.”
H-1B visas have been at the center of an ongoing immigration debate, with tech companies champing at the bit to expand the availability of these high skilled visas, while critics argue they are serving to displace American workers with cheaper, foreign replacements.
The Times’ report highlights a few recent examples of large firms giving American employees the boot and then turning to foreign labor contractors to fill their slots, including Southern California Edison, Fossil, Northeast Utilities, and now Disney.
This is the American way though. Beat your competition though lower prices.
It seems most folks don't understand competitive strategy nor fundamental economics for commodities... Prices are set at the margin by swing producers. Once OPEC us producing at capacity, what happens to oil prices? And how aggressive will shale producers be in light of this takedown? The risk went up, so the hurdle rate / required price to go all out producing increases. What we have with Shale is a strategic capacity buffer to manage the transition and keep a ceiling on ST prices. Nothing more. Wake up people.
The magic moment is when the US becomes an oil exporter vs importer. The Saudis may be "winning" but not against US shale. They will merely be gaining market share mostly from other OPEC members who cannot survive current prices. Since the US will no longer be importing and WTI oil is a much safer, reliable source to be importing from, WTI will command a premium to Brent for risk alone. Would the world rather be dependent on the largest oil consumer or on terrorists who use oil as an economic weapon?
If the Saudis are winning, it will come at a very steep cost to their standard of living. But then, they have no choice. They have already lost control and will resort to gouging their OPEC "friends", like Venezuela, e.g.
Phil, where did you get those magic mushrooms that allow you to halucinate that the US will ever become an Oil Exporter. You can't just be a dreamer can you? Or a super Patriot? Or an idiot?
Awww... Aren't you adorable!
The US is a refined products exporter and condensate is legal to export and has been getting exportd lately.
All it takes is for America to crush domestic demand by 10 million barrels and oil to rise to $150 per barrel, and America can become an oil exporting powerhouse.
You're right, that's a magic moment. Which is why it will never become a reality...
In the short run, this is perhaps true.
But shale oil is technology and the Saudis are desperately fighting against the future.
Which will eventually arrive on their doorstep no matter how hard they fight to keep it away.
In the meantime, they are unwisely depleting their currency reserves and pumping their wells dry.
Even if their strategy prevails temporarily, it only shortens the time period of their remaining dominance.
The magic moment is when the US becomes an oil exporter vs importer. The Saudis may be "winning" but not against US shale. They will merely be gaining market share mostly from other OPEC members who cannot survive current prices. Since the US will no longer be importing and WTI oil is a much safer, reliable source to be importing from, WTI will command a premium to Brent for risk alone. Would the world rather be dependent on the largest oil consumer or on terrorists who use oil as an economic weapon?
If the Saudis are winning, it will come at a very steep cost to their standard of living. But then, they have no choice. They have already lost control and will resort to gouging their OPEC "friends", like Venezuela, e.g.
Odd. There has been a steady increase in prices at the pump around here for about two months, recently intensifying. No decline in sight.
The price of gasoline isn't the same as the price of oil. Refineries and distribution chains in the middle. Plus it's now "summer" so they jack up the prices. But agreed, it's gone up percentage-wise by more than the price of oil vs. a few months ago. In California it's not far from it's recent highs, in fact.
Have to use more expensive blending components to make summer gasoline to reduce smog/air quality as well as allow your vehicle's engine to start and operate more efficiently in warmer weather... government ruling and econs are what they are, but some science to it too
This is all BS.
They say in Caifornia the price of gas is back up and in Canada where I live it jumped 14 cents a litre to 112.9 a litre. That or somebody on this side of the Atlantic is hosing us which doesn't surprise me.
Too bad they are too busy with FIFA to do anything about .gov and corporate corruption here.
The oil firms all hedge. But hedging only goes so far, up to 12 months into the future. They cannot use hedging to lock in 2013 prices. The price at the pump drops and this also affects the corporations bottom line. So as we all see low oil prices we also see the oil companies raising the pump prices on the consumers.
This should give the "stingy consumer" some extra pennies to spend at HilsenRat's department store....
never underestimate the free money flow into oil by the stupid gamblers...
Instead, the strategy was a price war against non-OPEC memberswho were ramping up production, particularly those in the United States exploiting the boom in shale oil.
BS
US dont export oil and import oil mostly from canada and south america
Imports from Saudi Arabia and Iraq are down by 18% from a year ago. I would call the Saudi dumping an abject failure here in the US. I don't know who they are competing against in Asia, perhaps Russia? I think it is mainly Iran though and that is why they are having problems in Yemen. The US does export condensate which is a form of oil, it is only lightly processed. So technically speaking, the US does export oil.
The U.S. Should stop policing the Mideast, pull out of the Persian Gulf, and let price discovery work. Would love to see Saudi's true cost of sales w/o Uncle Sam's free security service.
Oil bubbles into doldrums in the short term to ensure market dominance for Saud over US shale.
But oil will then spike once the financial bubble resolves into reset; as 7 billion people need all the energy they can get.
Upto the emergence of a renewable paradigm which is grid sustainable we are in a period of long attrition of world GDP and growth, grid-locked by the fossil asymptote; around 2025 onwards.
Who will be managing that transiton is what this is all about. Pax Americana has all its money now on the table; as do the Sauds hoisted on their own ISIS petard.
oops, wrong page
Saudis really do not care that much and already own a big chunk of US economy,estimated at 6% a few years back.
Short Shale to zero
There is a big divergence emerging in OPEC. Arabia, Qatar, Kuwait etc. have low production costs. Iran and Venezuela have higher marginal production costs. Sure Arabia can collapse US shale production, but will US shale collapse first or Venezuela and Iran?
If the Saudis lowered their price to zero they could have 100% of the market, would that make them happy?
[evil thought]: when Saudi run out of offshore tankers to store all this surplus oil they're pumping they'll build storage tanks surrounding Riyad.
Then they can be bombed to bits and have an Arab Royal Family BBQ.
Two birds killed with one stone.