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Saudis Could Face An Open Revolt At Next OPEC Meeting
Submitted by Dalan McEndree via OilPrice.com,
OPEC next gathers December 4 in Vienna, just over a year since Saudi Oil Minister Ali Al-Naimi announced at the previous OPEC winter meeting the Saudi decision to let the oil market determine oil prices rather than to continue Saudi Arabia’s role of guarantor of $100+/bbl oil.
Despite the intense financial and economic pain this decision has inflicted on Saudi Arabia, its fellow OPEC members, and other oil producers, the Saudis have given no indication they plan to alter course. In fact, Saudis have downplayed the impact of lower prices on their country, asserting that the kingdom has the financial wherewithal to withstand lower oil prices.
Presumably swayed by Saudi equanimity, financial markets do not see the Saudis abandoning their current policy before, during, or after the upcoming OPEC meeting. CME Brent oil futures project continuity: as of August 18, 2015, CME Brent futures projected the price remaining below $60/bbl until June 2017. A CNBC poll of oil traders, analysts, and major fund investors, aired on CNBC August 17, showed 95 percent believing the Saudis will not alter course.
Are the futures market, CNBC’s oil traders, analysts, and major fund investors, and others, being lulled into an unjustified consensus?
The damage the Saudi decision has inflicted on Saudi Arabia itself provides reasons for the Saudis to change course.
Saudi Policy: OPEC-centric or Self-Serving?
Stresses within OPEC should add to the pressure on the Saudis to rethink their strategy. The Saudis sold their change to their fellow OPEC members as being in OPEC’s general interest. They asserted that the their traditional method of stabilizing the oil market, production cuts, would not work since non-OPEC producers would increase output; second, that “market” forces would reduce investment and therefore increase prices in the medium and longer term and ultimately benefit all OPEC members; and third, that any Saudi increase in output was aimed at defending its market share, not reducing theirs.
As the first anniversary of the Saudi decision approaches, it would be reasonable for OPEC outsiders–OPEC members, other than the Saudis and their Gulf Arab allies, Kuwait, UAE, and Qatar—to interpret Saudi policy shift as designed to serve Saudi interests and those of its Gulf Arab allies rather than their interests and those of OPEC in general.
“Market” forces include many components. A key component—perhaps the key component—is a country’s capability, at a minimum, to maintain output, and better yet, to increase output. Financial wherewithal is the foundation of this component. Saudi and Gulf Arab OPEC members’ foreign currency reserves and sovereign wealth funds (SWF) comprise approximately 78 percent of total OPEC member holdings, $2.73 trillion of $3.05 trillion.
As the following table shows, their advantage is particularly large on a per capita basis. Of the non-Saudi, non-Gulf Arab ally OPEC members, only Libyan per capita resources exceed the average. (The UAE includes data for three SWF funds only: Abu Dhabi Investment Authority ($773 billion), Abu Dhabi Investment Council ($110 billion), and Investment Corporation of Dubai ($183 billion)).
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Given the other budgetary demands on their oil revenues, $50/bbl or $60/bbl oil leaves these OPEC outsiders with little to invest in maintaining oil output, much less expanding output. Budgetary pressures and limited financial resources, for example, have forced the Iraqi government to request its foreign partners, BP in the Rumaila field and Exxon in the West Gurna-1 field, to reduce spending to cut 2015 investment by $500 million ($1.1 billion vs. $1.6 billion) and $1 billion ($2.5 billion to $3.5) respectively.
While all OPEC members, including Saudi Arabia, have suffered from the Saudi decision, they have not shared the pain equally. Saudi Arabia and its Gulf Arab allies, except Qatar, have increased output, while the output of other OPEC members, other than Iraq and Angola, has either flat-lined or decreased, compared to 2014:
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Given Saudi determination to defend its export markets, it is interesting that the percentage gain in their crude exports exceeded the percentage gain in crude output in 1H 2015, by 2.7 percentage points. For Iran, the only other OPEC country for which the IEA provides domestic demand data, the increase in exports, 0.7 percent, matched the increased domestic output.
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Interestingly, also, the Saudis increased their share of OPEC average daily output in the first half of 2015 over 2014 average daily volume—and their share of average daily global output. Their share of OPEC output increased to 26.6 percent in 1H 2015, from 26 percent on average in 2014, while their share of world output increased to 10.4 percent from 10.2 percent.
For the OPEC outsiders, this should be particularly distressing, since the increase in output likely deepened the decline in prices the Saudi decision to abandon its role as guarantor precipitated.
Both results continue trends seen since 2010. Saudi share of OPEC output increased three percentage points, from 23.6 percent in 2010 to 26.6 percent in 1H 2015. At the same time, the Saudi share of world output increased 1.1 percentage points, from 9.3 percent to 10.4 percent, during the same period; during the same period, OPEC output as a share of global output declined slightly, from 39.5 percent to 39.2 percent.
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In fact, over this period, Saudi Arabia and its Gulf Arab allies increased their total output 18.1 percent while the output from the other OPEC members decreased 5.4 percent. During this period, the Saudi and Gulf Arab share of global output was flat, declining only 0.1 percentage point, while the share of the other members declined 1.5 percentage points, from 16.7 percent to 15.2 percent.
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Impact on Non-OPEC Producers as Advertised?
In defense of their policy, the Saudis could point to IEA projections that show the rate of growth in output from major non-OPEC producers slowing substantially in 2016, particularly in North America, a major Saudi target, and Brazil:
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However, it is reasonable for the OPEC outsiders to question the actual efficacy of Saudi policy on non-OPEC producers and the benefit it will bring them. In both the United States and Russia, each of which produces roughly as much as Saudi Arabia, output increased in 2015 rather than decreasing, and will continue to increase in 2016 in the U.S.
The IEA projects Brazil’s output, despite Brazilian political turmoil, growing 6.45 percent in 2016. Moreover, Saudi policy, combined with the impact of U.S. and EU sanctions on Russia, led to the undesirable result for OPEC (and other oil exporters) that Russian exports have increased, from 7.21 million barrels/day in 2014 to 7.55 million barrels per day in 1H 2015, in part because as Russia’s economy contracted, reducing domestic crude demand to 3.47 MMbbls/day in 1H 2015 from 3.65 MMbbls/day, while crude output increased to 11.025 MMbbls/day from 10.86 MMbbls/day.
Moreover, any comfort the OPEC outsiders gain at best may be cold comfort. While the IEA projects surplus production will begin to recede in 2H 2016, they are suffering now (and in any case, it is a projection). As we have pointed out, RBC Capital’s fragile five, Algeria, Libya, Nigeria, Iraq and Venezuela, the pain is intense. Also, it is wealthy Saudi Arabia and its Gulf Arab allies and non-OPEC members, in particular the U.S., Canada, Mexico (foreign investment), and also Russia (Chinese investment), that will have the financial wherewithal to grow output to satisfy the 18 million barrel per day increase in demand that OPEC sees by 2040.
The December 2015 OPEC Meeting
Given the Saudi decision’s positive impact on their and their Gulf Arab allies’ relative position within OPEC and its negative impact on OPEC outsiders, it is possible, perhaps even likely, the Saudis will face an OPEC outsider revolt at the December 4 OPEC meeting.
The Saudis and their Gulf Arab allies would seem to have three possible approaches, should a revolt occur:
Reconciliation, as Saudi Arabia acquiesces in the wishes of OPEC’s weaker members to bring price increases forward through OPEC production cuts, Saudi Arabia bearing the brunt;
Separation, as the Saudis and their Gulf Arab allies ignore their fellow members’ entreaties and force them to wait for “market” forces to balance supply and demand; or
Divorce, as the Saudis and their Gulf Arab allies decide to exploit their financial wealth and go their own way, therefore forcing their fellow OPEC members, unable to finance their domestic oil industries, unwillingly to bear the brunt of global production cuts.
In October 2014, the Saudis began signaling their intention to abandon their role as guarantor. It is unlikely however, that whatever Saudi decision makers are now considering, they will show their hand in advance of the December meeting, since this would reduce pressure on the non-OPEC producers that the Saudis claim to be targeting, before necessary.
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will WTI hit the 39 dollar mark today?
oil just tagged
39.98
I'm just sitting here watching the wheels go round and round, lord I love to watch them roll...no longer riding on the merry go rou, ound! I just had to let it go. (john lennen)
I've always liked the alternate reality version of that better.
https://www.youtube.com/watch?v=FkqE8B7wVYI
thanks...I dont know which I like better, but thanks cause I never heard that version before...kudos to ya.
Whatever on the economy, the love I have found with many here on the comment section will win in the end...
< Arabs are revolting.
< Arabs have ALWAYS been revolting.
The CIA killed John Lennon...the pieces of shyte...how about "working calss hero" by John Lennon....a major classic....xlnt lyrics.
https://www.youtube.com/watch?v=njG7p6CSbCU
S+P
just cracked the 2000 level
Saudis will always obey the orders from their masters and protectors in Washington.
The corrupt, criminal Saudi regime is kept in power by US support.
John Kerry, the US secretary of state, allegedly struck a deal with King Abdullah in September (2014) under which the Saudis would sell crude at below the prevailing market price. That would help explain why the price has been falling at a time when, given the turmoil in Iraq and Syria caused by Islamic State, it would normally have been rising.
The Saudis did something similar in the mid-1980s
http://www.theguardian.com/business/economics-blog/2014/nov/09/us-iran-r...
The drop of oil to $10 a barrel in the mid-1908s, engineered by Saudi Arabia at US command, is cited by many as the cause of the breakup of the USSR.
Obama wants Saudi Arabia to destroy Russian economy03.04.2014
U.S. President Barack Obama tried to convince the King of Saudi Arabia to coordinate actions in the oil market to reduce world oil prices, the main source of Russia's export revenues, and "punish its behavior" in Crimea. Experts estimate that if the prices are reduced by as little as 12 dollars per barrel, the Russian Federation will lose $40 billion in revenue. There has been a precedent, because this is precisely how the USSR collapsed.
http://english.pravda.ru/world/asia/03-04-2014/127254-saudi_arabia_russi...INDEED! A deal was stuck that the USA armed forces would be the back stop for Saudi power. In exchange, the Saudis offered the USA the final say on most things of critical geostrategic importance. And just as importantly, Saudi has given it's intelligence agencies over to US control, allowing the USA to manage Islamic Terror as the needs suit them. See SYRIA, for an example of how the USA can manage Islamic Jihad to further US interests. Saudi provides the USA the vital link between the world of Islamic Terror and Washington's needs to attack nations unwilling to cooperate. As a start, Saudi was the main link to form Al Qaeda in the 80's during the Islamic Crusade against Soviet occupation of Afghanistan. Also, in Kosovo, the US wanted a Muslim Kosovo allied with NATO, Saudi stepped in and funded, armed and trained Jihadists to come to Kosovo to reinforce the Kosovar Albainians in their fight to eject Christians from greater Albania. Forming the first Islamic State allied directly with NATO and Germany.
Now, as you correctly point out, the Saudis are using the power of the pump to try and drive Russia to ruin. Even at the cost of lost revenues. The USA decided to wage economic war, and Saudi is obliged to cooperate in it. Russia is the ONE threat the US is willing to use every power it has to ruin.
The thing is Russia is NOT a threat and never has been. Its been a threat perhaps to the Amerinazis who want to control the world.
It won't matter if the world economy takes a shit, because if they won't buy it, you can't sell it.....
Oh wow, you quote PRAVDA to prove your point? In bold no less?
I guess you don't know what Pravda is and who controls it.
Pravda is the official mouthpiece of Russia's Communist Party. But of course, they never distort the truth.....
There's a sucker born every day, and today's your day.
You seem to be still stuck in the 1970s it seems. Today Pravda is not any more of a propaganda outlet than CNN. .. Now give that some deep thought...LOL
Divorce is out since all divorce attorneys will still be swamped with Ashley Madison cases.
China selling Shiite oil for Yuan.
Table 1 averages do not compute.
The OPEC average for foreign reserves is $919 billion while Saudi Arabia has the highest at $660 billion.
Sand nigger, please
MEGA PUKE FACTOR 9 BEX ALERT - Study of Holocaust survivors finds trauma passed on to children's genes
Genetic changes stemming from the trauma suffered by Holocaust survivors are capable of being passed on to their children, the clearest sign yet that one person’s life experience can affect subsequent generations.
"See? See? Now you have to KEEP on giving us money, forever and ever and ever and ever and ever ..." -- Nodding Yahoo
When I heard a few years ago that the children and grandchildren of survivors were getting tattoos of their relatives' camp numbers as a way to remember them, I knew that the next phase of the transgenerational grift was being put into play. How to keep milking Germany and others for Holoca$h once it became obvious that anyone who actually went through that could no longer possibly be alive? By making the trauma inherited! Did we ever think there was a chance they would shut the fuck up about it? No way!
How many goy cattle will fall for this? All of 'em probably.
Epigenetics is a very interesting field of study.
Shit happens because shit happened.
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Open revolt? How? What? They other nations will starting pumping out more crude, to increase their revenue?
The question that needs to be asked is what are the Saudi's doing, increasing output? Solve that one, and you've got the real answer.
•?•
V-V
Trying to hurt the Russians, per the vanguard of Democracy, Uncle Scam.
But the Saudi's aren't increasing output. Their PRODUCTION is only up 0.5 mb/d from 3 years ago. And their EXPORTS are only up a little. In fact, their exports are only up a tiny bit.
Somebdy ought to give serious thought to bombing Saudi Araba. It would help to bring to an end both the Mddle East conflict, the Petrodollar and probably usher in a period of political and finacial calm.
Divorce? Doubtful...How will they sell their oil at a premium when the Saudis will just undercut them? The Saudis can play this game for years to come without really hurting themselves too badly.
Reconciliation? Doubtful as well...How will the Saudi (US and Israeli) political goals be achieved if their perceived adversaries can sell $100 oil (and ostensibly avert political/civil instability)?
Separation? Maybe, but to what end? If the Saudis sell $30 oil, and you need $110 to have a viable economy, you're still going to have to compete with $30 oil.
The problem if OPEC cuts production and increases oil prices, then all the shale oil and oil sands producers are right back in business.
And the reality is that Saudi Arabia, hasn't really increased production much at all, and EXPORTS are only up very minimally. PRODUCTION is up 0.5 mmb/d from 3 years ago, yet their internal consumption is also UP. 0.5 mmb/d is peanuts compared to the 94 mbd world consumption. The US alone has decreased oil imports by over 7.5 mmb/d over the past decade and the US is now also the world's largest oil producer.
The Saudi's are desperately trying to knock a lot of that new production offline, becasue the more the US produces domestically, the less leverage and importance Saudi becomes.
It's going to be a very messy OPEC meeting.
What I'd like to know is why the frack am I still paying over $3 for a gallon of gas. Oil price drops 60%, gas drops 15%. Someone is making one hell of a spread.
Oil prices are down, gasoline taxes are up.
Its not mystery, its big government socialism
My taxes have not gone up on gasoline. The refiners are reaping the gold of low crude and semi monopolized production. Just look at the current BP Whiting IN tomfoolery.
It's a shame there's so much turmoil in OPEC.
They seem like a great bunch of fellows.
it is possible, perhaps even likely, the Saudis will face an OPEC outsider revolt at the December 4 OPEC meeting.. with three possible outcomes - Reconociliation, Separation, or Divorce.
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Don't forget the murder-suicide option.
To divorce Saudi Arabia, they must marry one of the other BIGS - meaning the United States or Russia...otherwise they get crushed by them.
NWO
VS
BRIC's
It's called
MONOPOLY
this is not your fathers socialism
A "revolt"? How stupid is this author?
If any member of OPEC wants to cut their production (and their market share), they can do so at any time without notice to the Saudis or anyone else.
They all want the other guy to take market share cuts (while they continue to produce all out). What does this dim witted author think OPEC will do? Threaten to hold their breath like a 3yr old until Saudi Arabia gives in?
Come on Zero Hedge editors... this article is just too stupid to be published
As soon as Putin is gone or the Russian gov implodes, the price will mysteriously go up. Saudi will stay the course that Dollar,Inc has given them to ride.
I think the Chartist mixed up Average and Totals on the First one...