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Could This Be OPEC's Long-Term Goal?
Submitted by Kurt Cobb via OilPrice.com,
Delayed gratification is said to be a sign of maturity. By that standard OPEC at age 55 demonstrated its maturity this week as it left oil production quotas for its members unchanged. It did so in the face of oil prices that are about 40 percent lower than they were at this time last year, delaying once again a return to the $100-per-barrel prices seen during the past four years.
Why OPEC members chose to leave their oil output unchanged is no mystery. The explicit purpose for keeping oil prices depressed is to close down U.S. oil production from deep shale deposits--production that soared when oil hovered around $100 a barrel, but which is largely uneconomic at current prices. That production was starting to threaten OPEC's market share.
If OPEC were to cut its oil production now and drive prices back up, it would only lead to increased drilling in the United States and loss of market share. In fact, even as spot oil prices sank below $45 per barrel in the United States earlier in the year, investors continued pumping money into U.S. oil drilling. According to The Wall Street Journal U.S. oil companies sold almost $17 billion in new shares in the first quarter of 2015, more than they sold in any quarter last year when prices were much higher.
Preliminary estimates by the U.S. Energy Information Administration show that oil production continues to grow in the United States despite low prices. (The final numbers won't be in for months.) New investors in U.S. oil company shares must believe they are catching the bottom and will have a very profitable ride up from here. This demonstrates that OPEC's work is not done and accounts in part for the decision to leave production quotas unchanged.
OPEC's next task is to convince those making new investments in oil that rather than catching a bottom in oil prices, they have caught a falling knife. The cartel must dampen enthusiasm for investment for the long term if the organization's members are going to benefit. A crippled U.S. oil industry without friends in the investment world is the only way to assure that rising prices won't simply lead to a stampede back into U.S. shale deposits.
How long will investors in those deposits have to suffer before they say, "Never again"? My guess is at least another year. And, the pain for those investors might get much worse in the meantime. With the prospect of a nuclear agreement between Iran and the United States and Europe, Iranian oil exports could ramp up considerably as economic sanctions end. Disruptions elsewhere--Nigeria, Libya, and Iraq, for instance--might ease and further add to world exports.
For Saudi Arabia, OPEC's largest exporter, winning the oil price war with U.S. producers in the next year may be part of a broader strategy meant to maximize Saudi revenues as production in the kingdom hovers at an all-time high over the next decade before beginning a decline.
The Saudis have already said they have no plans to expand beyond their current capacity of around 12.5 million barrels per day. Is this because they choose not to or because they can't? Only the Saudis know. The idea that the country is essentially on a production plateau that may not last for the long term would explain why the Saudis want to crush the U.S. domestic oil industry now rather than wait for declines in U.S. production expected after 2020.
Under this scenario the Saudis want to raise prices, while maintaining their current volumes, well before then in order to take maximum advantage of their record all-time flow rates that could be over by the mid '20s. This scenario has major implications for a world that as recently as 2011 was counting on more than 15 million barrels per day from Saudi Arabia by 2035.
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Another worthless article which ignores the economic war being waged by the USA against Russia and Putin.
Saudi Arabia driving oil prices to under $10 a barrel in the mid 1980s played a major role in the collapse of the Soviet Union. Saudis, under US guidance, are hoping to repeat that success.
Oil price drop is ‘economic warfare against US enemies’The current oil price decline can be explained by heavy selling in US future markets which is part of an all-out economic war between the US and countries like Russia, Iran and Venezuela, says financial journalist, Willem Middelkoop.
http://rt.com/op-edge/224831-davos-forum-elite-switzerland-business/
Did the U.S. and the Saudis Conspire to Push Down Oil Prices?http://www.globalresearch.ca/did-the-u-s-and-the-saudis-conspire-to-push...
I suspect that the Saudis are looking out for the Saudis behind the scenes and are playing against both Russia and the US. I don't think that they're mutually exclusive in the slightest.
Exactly, US tries to damage Russia which scarificing the US shale market to Saudi Arabia in the meantime..........seems like a fair trade doesn't it?!
Anyone who would invest in high cost oil in a low price environment that is driven by excess production and decreased demand deserves the fucking they've got coming.
it's a matter of perspetive.
some people want to ignore the reality that decisions are made in boardrooms, so they write articles about the 'markets' which are nothing but illusionary SYMPTOMS of human deicisions motivated by real, actual desires and fears.
while smaller players are motivated by the fear and greed of the 'market price'. big players and cartels by definition SET PRICES THROUGH SETTING PRODUCTION.
the continued financial garbage coverage of 'markets' has nothign to do with a perpsective about why REAL boardrooms of REAL producers make REAL decisions.
there is a reason you never read about 'MARKETS' in history books. beause the real narratives of history that are gathered by historians in hindsite are those very same narratives that boardrooms discusss on a present basis in confidence.
history has ACTORS. those actors sit in boardrooms and discuss historical scale motivations for making their deicisions. and those decisions have zilch to do with 'markets' in the sense they are worried about year to year price gyrations. they are not. they CAUSE the year to year price gyrations through their behavior..
they have everything to do with CONTROL , WAR, STRATEGY, ETC....
so , agreed. this article is worthless for anyone interested in real world history on a present basis rather than on some nonsense about what the oil prices will do.
oh kurt, take your cobb and stuff it. blah blah blah...good grief
U.S. monthly crude-oil output highest in more than 40 years
9 June 2015, by Myra P. Saefong (MarketWatch)
http://www.marketwatch.com/story/us-crude-oil-monthly-output-was-highest-in-more-than-40-years-2015-06-09
Kurt Cobb is the premire energy analyst we should all be following. He's correct on all counts, right on the money as usual here.
The Saudi's know full well we're bouncing along on the undulating plateau of peak oil. They're wisely positioning themselves for the looming period of worldwide declining oil production when hydrocarbon prices and market share will reap them massive profits.
Or, they know that oil is abiotic, and that there's no cheaper place on Earth to keep drilling new wells than Saudi Arabia and Iraq.
'
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How did all those dead dinosaurs and rotten vegetation get down into that earth?
And only in certain spots?
"Because of plate-tectonics!"
So isn't there more material on this great cycle, moving along the conveyor belt?
How come they discovered a lake of methane on a moon around jupiter a few years ago?
Where are the dinosaurs on that moon?
Thorium and fusion power, see blacklightpower.com and focusfusion.com are going to render oil obsolete.
•?•
V-V
C'mon now. Everyone on facebook knows it's "dino juice" ;)
Another idiot who believes that oil prices are determined by physical supply and demand.
Energy prices cannot and will not be allowed to continue to fall. That would benefit us peons. They'll wait until they hit "peak SUV/gas gulper loans" then jack the prices up to the highs.
Suck it, peons, it's hard pushing all this money uphill.
time to take a vacation Korn Cob until you have something to say.
a stampede back into U.S. shale deposits.
This is possible only with record low interest rates for finance capital. Profit margine on shale oil are minimal at $80 a barrel. Really only viable at $100 a barrel long term. Fed liquidity dumps found a home in finance of frackers, anything like $40-$75 a barrel is a death sentence to fracking. Plus, the very BEST frack geology was developed FIRST, so the best returns wee the FIRST returns. An oil geologist can tell you, there are no more of the prime plays left.
Oil over $100 puts shale back in play, on the margines. Canadian Tar is even worse, Saudi pumps oil for 1/10th the cost of a barrel of processed tar, without any clean up and reclaimation coast, or water pollution costs.
We've discussed this scenario here on ZH more than once. It is not improbable that the Saudis would cooperate with USA efforts to hurt the Russians while at the same time crushing our upstart shale oil drillers. It is a double win for the Saudis, and they can win again by "allowing" prices to go up in a year or two in negotiations with the Russians, in exchange for some favor or other.
Do drones run on gas or electric? If gas, then the price of oil will definitely go up.
How many drones built and used so far?
"Canada’s battered oil producers face a decade of slowing growth and dwindling production, a sharp reversal for an industry once seen as an economic juggernaut.
A key industry forecast on Tuesday cut more than one million barrels per day of future production from the sector’s growth trajectory and said investment levels would fall this year by 40 per cent from a year ago – underscoring stark challenges confronting companies already shaken by the prospect of higher royalties and environmental fees under Alberta’s NDP government."
PM Harper staked Canada's future energy superpower status on Tar Sands and other oil at the margines. Looks like Harper fucked up. Say goodby to local housing bubbles in oil country as well.
Fuck Saudi and the USSofA. Exports to China down while imports from Russia up. When the Chinese pipeline from Pakistan/Iran is built those Saudi fucks will be overrun by Jihadi's.
Let Israel adopt them.
OT: I prefer a rake over a leaf blower. I like peace and quiet and less dust in the air. Just my two cents worth.
How come you call OPEC a cartel but never call the banking system a cartel. One is run by Arabs and one is run by Jews. Is it because you don't want anybody to figure out that banking is a cartel ?
Iraq is totally fucked right now. If oil hits $30-$40 per barrel Iraq will fall apart. Already they can't pay bills, are cutting salaries and delaying projects.
Saudi wins big if oil hits $30 per barrel for extended periord
Vomit.
Show me a "DEMAND" Chart!
Show me a "CONSUMPTION" Chart!
otherwise, this is all smoke and mirrors and ZH
is contributing to the S & M... ;-)
Never happen. If the price goes up US shale will be right there again. That is the beauty of Greed and Tech in Oil, you eventually cut your legs out from under you. I love it.
peak oil is alive and well....
Does anybody ever stop and think what would happen if we could recover even 30% of the boe that we already know about????? (We get 1/2 - 1 1/2 % out of shale currently...)
Your talking oil so far into the future that nov=body can possibly conciev it...
The stuff is there for the getting and as the technology gets better it will happen until wi just use oil for lubrication and that is going to synthetics using nat gas.......
Just remember the famous quote " The stone age did not end because of the lack of stones"............
The many deep strategies hypothesized by writers are, all that I have read, dumb.
This one fails because it assumes that SArabia thinks it can outspend the Fed. So long as the fed and other CBs keep pumping out $, people will keep investing in drilling, exploration.
When the CBs stop easy money, the economy will be so far in the toilet that SA's price for oil will be low, unless Goldman and the other futures dealers help out again, which they will, but SA won't get their price. Unless Goldman is part of the plan, of course ... But Goldman has too many conflicts of interest for that to work for long?
rather testy today in here, is somebody cranky?
So, this article is a little short on substance.
Why? Well because it is saying that OPEC is trying to retain market share against us Crude Refiners in the world.
That just isn't so. It can't be so. Because it is against the Law to be so.
What the hell?
Yes. Since 1975 US oil cannot be exported.
If it can't be exported, then how the hell can it steal world market share????
It can't, to be blunt.
But the US uses a huge amount of oil. What it CAN do is reduce oil IMPORTS.
Reducing US Oil Imports - again because the US is such a huge consumer of oil - leaves a commensurate amount of oil swimming around foreign shores looking for customers, that would otherwise be bought in the US.
So...it is actually more exactly proper to say the THE US OIL PRODUCERS STARTED THE OIL PRICE WAR BUT DIDN'T PARTICIPATE IN IT...simply because they aren't allowed to export.
You can see this in the price spreads. WTI is priced lower than Brent. It has been priced lower for decades. Since the 1970's in fact.
But why would that be?
1) The US refines more fues from crude than it uses and exports the rest - The US oil has less transport cost embedded in the price at those refiners, and hence a higher demand.
2) The fact that US producers cannot export puts a price cap on WTI relative to exportable international oils. US producers MUST sell their product in the US. To do so they compete with each other, and with international exporters...until there aren't any exporters. After that supply must reduce or it will out-pace demand -particularly cyclically- leading to periodic sharp drops in the price. The internationals, for comparison, can search for other markets.
3) Anti-export laws make national energy self-sufficiency into a suicide pact for producers because of supply and demand: This means that the US market price for oil will always be something less than the international market...while simultaneously ensuring that the US producers cannot make the US energy self-sufficient without cutting their own throats. Every barrel they produce above domestic consumption goes directly into price drops...and they can't accurately predict exactly how many barrels are needed in advance. So any temporary lull in the economy could make them bankrupt because they can't move the excess oil somewhere where it will earn a return...or even less of a loss.
4) The foreign price of oil often has embedded statutory costs such as imposts, excises and other taxes that artificially elevate the cost of energy above similar but less extensive regulations in the US.
SO WHAT IS THE GLOBAL OIL PRICE DROP TELLING ME?
+ That the US approaching energy self sufficiency is creating a glut overseas by shrinking the US market for foreign oil. Essentially, the US producers have said to the foreigners, "Let's you and him fight for foreign market share, since you're losing this one."
+ That there can't be much more crude production in the US without creating sharp price oscillations...because the future timeline to bring production online is longer than the future timeline where anyone can forecast demand...hence they'll try to undershoot domestic demand until the export ban is lifted. But any sharp drop in demand will cause an even sharper drop in price...because they'll ALREADY have produced too much, and will have no choice but to fill tainks ...and then find a clearing price...even if the clearing price is a fraction of the production price.
+ That the sharp change in oil demand will be EVEN MORE disruptive in heavily regulated overseas markets...where the artificialities of price via government regulation and taxation amplify price swings. Changes in regulated prices (price + government costs whether tax or regulatory) trail changes to the market price. So when economic conditions drive a price drop, the percentage of the price represented by government edict grows. This effectively keeps the price from dropping as far, as fast as it needs to to find a clearing price...amplifying the drop. On the upside the effect is opposite. A rising price will have a smaller percentage of government in its cost...leading to market savings relative to the underlying commodity...and further boosting demand. BECAUSE COMMODITY PRICES ARE RELATIVE TO EACH OTHER...NOT TO GOVERNMENT DICTATES (whether monetary, tax, regulatory, or other).
+ That the US producers have a heavy incentive to lobby for ending the export ban...that is disproportionate to the profits of the moment. Their incentive is not just profit but forecasting risk reduction in case of domestic slow-downs.
+ That lifting the ban will have a DRAMATIC effect on world markets, and governments, as their bloated energy sectors operated for generations as a public fiscal pacifier will have to compete with companies without such social-program tail costs, and who have had to constrain their production costs much more strictly over the course of the four-decade export ban.
So...no. The Saudi's aren't doing it to get market share from the Shalers. They're doing it to take market share from the Russians, while hopefully killing the Shalers. Except...the Russians and Saudi's have government social-program tail costs that they can't control saddled on their production costs....the Shaler's don't.
Shalers only have to worry about getting the oil. Foreign producers have to worry about whether reduced profits will get them a bullet to the head, start a war, or a civil war. Because people don't like it when they don't get their 'free' money. (because there's no such thing)