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OPEC Set To Continue Playing The Waiting Game
Submitted by Arthur Berman via OilPrice.com,
Following OPEC’s decision not to cut production at its June 5, 2015 meeting in Vienna, oil prices should likely continue their descent that began in early May (Figure 1). Prices may fall into the $50+ per barrel range since there is no tangible reason for their rise from January’s $46 low.
Figure 1. Brent crude oil spot price May 1- June 1, 2015: Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)
Saudi Arabia’s longer view of demand and market share dominated the decision not to cut.
World oil production has undergone a structural shift from supply dominated by relatively inexpensive conventional production to increasingly more supply coming from expensive deep-water and unconventional production. Most conventional oil is located in the Arabian, Siberian and North Caspian basins (Figure 2) while deep-water and unconventional production is focused along the margins of the Atlantic Ocean and in North America.
Figure 2. Location map showing Arabian, Siberian and North Caspian sedimentary basins. Source: USGS.
(click image to enlarge)
This shift is at the root of the current price conflict between OPEC and North American oil producers. Since 2008, OPEC liquids production has been fairly flat until mid-2014 (Figure 3). Non-OPEC production outside of North America has been flat. Most production growth has occurred in the U.S. and Canada but it is not only from tight oil.
Figure 3. World liquids production since 2008 showing OPEC, non-OPEC minus the U.S. and Canada, and the U.S. and Canada. Source: EIA and Labyrinth Consulting Services, Inc.
(click to enlarge image)
The competition for OPEC market share is from Canadian oil sands, Gulf of Mexico deep-water and tight oil production. U.S. plus Canadian production has increased 6.2 million barrels per day (mmbpd) since January 2008. OPEC production has increased 2 mmbpd over that period with 1.3 mmbpd (65%) of that increase since June 2014.
Lower oil prices over the past year (Figure 4) have not yet resulted in any observable decrease in North American production. Higher prices over the last few months further complicate the situation for OPEC. The global production surplus has gotten worse, not better, in recent months but prices rose based on sentiment.
Figure 4. Crude oil prices since June 2014. Source: EIA and Labyrinth Consulting Services, Inc.
(click to enlarge image)
It is true that U.S. production may be falling but a 3-month lag in reporting prevents us from seeing this. It is also true that OPEC may have limited capacity to increase their production further although Middle East rig counts have never been higher.
The only way for OPEC to significantly increase its market share is to undermine North American expensive oil production with low oil prices for at least another 6 months. This is why a production cut at this time made little sense to them.
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Good. Very good.
Another article on oil prices which does not even mention that America wants lower oil prices to weaken Russia whose main export is energy.
Worthless.
Mystery Behind Dropping Oil Prices Solved: Concerted Market ManipulationWho’s surprised? Various stories had been invented by media houses across the Western world in an attempt to explain why oil prices have conveniently fallen, just in time to pressure Russia, Venezuela and Iran, and all while covert political subversion, attempts to sell all-out-war and other measures have completely failed to assert US interests around the world. The obvious answer was market manipulation, an answer US and other Western news sources refused to admit … that is until now.
The New York Times in their article, “Saudi Oil Is Seen as Lever to Pry Russian Support From Syria’s Assad,” finally admits, “Saudi Arabia has been trying to pressure President Vladimir V. Putin of Russia to abandon his support for President Bashar al-Assad of Syria, using its dominance of the global oil markets at a time when the Russian government is reeling from the effects of plummeting oil prices. “
http://www.globalresearch.ca/mystery-behind-dropping-oil-prices-solved-c...
The G-7 seem to have forgotten that Russia has nukes and is an ally of China; and China will get its oil come hell or hi water.
Smell a rat here. China i believe is Saudi's largest customer .
China signs multi $100 billion , mother of energy contract with Russia plus $10's billions investment into energy infrastructure and Silk Road and now currency hedge and last but not least Military Coordination ( china sea naval exercise etc ). Question JO.
Why is china not best placed to dictate to Saudi rather than Saudi tempting Russia? For that matter Germany's reliance and MOU's signed with China giving it further bargaining power.
One way or another the House of Saud hears the footsteps coming up behind them. Enemies close, friends far away.
"Now your patrons have all left you in the red, your low-rent friends are dead. Life can be very strange."
Saudi Arabia gets its orders directly from Washington. So it has dropped crude prices and it never misses an opportunity to talk down oil prices.
China and USA are both importing about 7.5 million barrels a day. With the US pivot to Asia, China wants to diversify its oil supplies. Putin sees the constant threats from Washington and wants to diversify his energy customers. So Russia-China cooperation is a match made in heaven.
OPEC's oil production is about 30 million barrels a day out of total worldwide production of about 92 million barrels a day. So OPEC does not have significant control of oil prices today as it had years ago.
US will keep pressure on oil prices, try to block Putin's gas pipeline through Greece, try to overthrow Assad so gas can be exported from Saudi Arabia and other gulf states to Europe undercutting Putin, and the geopolitical games will roll on.
Sound!
Re my question below China can screw Saudi banning imports from there. Huge pressure on Saudi Domestic Economy.
In my mind China / Russia Need to make a big statement to Saudi and Turkey (the enablers ). Allowing Syria's enemies to expand into its borders hardly demonstrates their strength or loyalty.
China/Russia look after Iran, who in turn can look after Syria and parts of Iraq and Lebanon of course.
More than that natural gas is price indexed against oil to control pricing. They can't use production levels to control prices unlike oil. This is something all the big players prefer including Russia.
Russia has one major card they can play at any time if the oil prices get squeezed too low. Russia just needs to split it's oil and in turn natural gas pricing from being pegged to USD and OPEC production levels. Essentially split the market and supply into 2 with one half being priced in USD by OPEC production and reserves while the other priced in Rubles controlled by Russian oil and reserves. You'd see a shift most likely to the GECF becoming the equivalent of OPEC with Russia and Qatar at the head of that table. A split will cause a major price readjustment when you lose something like half the supply in the market overnight.
They are not going to get caught off guard again like in the 90s which caused the collapse of the USSR. They have the trade infrastructure in place this time around to split the market in half unlike then. What they don't have is the infrastructure to dominate the whole market. The next question is do they have the muscle to enforce it?
The whole gas/oil energy control paradigm is not going to matter anyways in another 10 to 20 years tops. The disruptive energy tech is here now it is only a question of who has the balls to push the first domino to topple the whole existing paradigm.
For people to read further on what the GECF is.
https://en.wikipedia.org/wiki/Gas_OPEC
OPEC in the west and GECF in the east. You will see a major war fought over that to keep the EU from voluntarily associating with the GECF to buy gas and oil.
Agreed.
Just on the tech though do you believe if something's out there then the Banks/.Gov/Fed would lend against expensive Frack-Plays when they could access cheaper Saudi/Iraq Crude pending tech. advances?
Also can sanctions be made against China forcing Saudi to Cooperate with Embargo. China then needs to purchase more expensive Russian Oil. I suppose its checkmate as Iran would step in to fill void.
. . and all the while the USSofA builds/beefs up military forces in Oz, Japan, Vietnam etc
Bugging me as to why China don't say F.U. Saudi who are keeping MIC & Oil US afloat. This would cause Saudi to drop production by say 30% and have much desired domestic unrest.
"The whole gas/oil energy control paradigm is not going to matter anyways in another 10 to 20 years tops. The disruptive energy tech is here now it is only a question of who has the balls to push the first domino to topple the whole existing paradigm."
I wouldn't bet on this claim. This is more "wishful thinking" than anything else. Let's not forget that so-called renewable energy is anything but renewable. The dirty secret is they rely upon rare earth minerals that are very "rare and expensive" and most of the supply is conrolled by China. In addition, the mining of rare earth requires vast sums of oil and chemicals and is extremely environmentally destructive. But people think this is okay so long as it isn't in their backyard.
So get used to the idea that liquid energy (oil) isn't going away. It is still the most cost effective and portable source. I will say this, get ready for the truth to be told about nuclear. For all those people who bought into the fear porn about it, they are about to get schooled.
Horseshit conspiracy theories abound.
The US has little to no control over OPEC policies and production. The above nonsense would assume that Iran and Venezuela are following US commands. Or that Russia is increasing output at US direction to harm Russia. JustObserving probably believes that some widow in Nigeria is really, really, just hoping to share millions with him.
In all this excitement i want to inquire if ISIS are part of OPEC or is there a member being used as a proxy.
The C.I.A. is not a member of OPEC.
I believe the CIA received Crude from ISIS for the Humvee's.
Maybe you Ebworthen if your still around or anyone else hazard a guess at the Saudi(CHINA)Russia Axis. The only plausible explanation i have is that China have such a good deal ( chirpy cheap ) for Saudi Crude which has peaked with wells diminishing rapidly and hence the prospect that Iran 5-10 years down the road are the ME Powerhouse. Giving credence to USSofA's Pivot to Iran and upsetting SA&Israel.
Could All be smokescreens though.
The Saudi's and other powers in the Middle East will sell to whoever has the cash (or Gold) and can keep them in power.
The U.S. is running out of cash and has bollixed the M.E.; China may be the next logical superpower to move in.
Fair Enough. No Saudi NO ARMS FINANCING, well almost. Again why would China prop up Iran's, Syria's and to a lesser extent Russia's Enemy ( although the Qatari pipeline is major play for Russia )?
Maybe shadow QE4 is FED direct purchases of Brent and WTI crude oil.
"J.Y. Holdings" and 20 subsidiaries that all lead back the FED.
Oil occurs in trapped, sedimentary basins, then .... where the sediment is not washed away and dispersed .... but collects and begins the slow olive oil pressing ?
In December, January, February, March,
there existed such a disparity of prices that the markets offered a highly profitable and very safe "carry trade" as follow:
Buy physical crude oil for $50/barrel or so.
Sell oil futures for 2 or 3 years out on the CME for $70 or so.
Use a small portion of the net proceeds to pay for shipping and storage.
Pocket the rest.
That's why oil prices did not collapse further. Capiche?
all i know is silver lost $16 handle and harvey and bo said crash was over
OPEC continues to step on it's pecker...............
How about the complete lies that production will be added at $60 via GS a to why oil is up? Below it will be reduced and at $60 steady as u can see.....mix depletion in that any baffoon except it appears here seems to ignore in productive regions at 60-80% in 12 months and u will see declines. It is so blatant that not even the media can hide it. Wake up here and stop this incessant attempt to publish articles that suit an opinion.
http://tos.mx/3pnzvu
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OIL's decline has a whole lot of down left...
http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...