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The Oil Wars Heat Up: Russia, Iraq Steal Saudi Market Share While Oman Blasts OPEC As "Irresponsible"
Last week, in the wake of S&P’s downgrade of Saudi Arabia and an IMF report which suggests that a number of Mid-East producers will be broke in five years if oil prices remain where they are today, we brought you, i) an in-depth look at Riyadh’s financial situation, and ii) a glimpse at where exporters stand in terms of breakeven prices and budget deficits.
We encourage you to review the full account of the Saudis' situation as Deutsche Bank does a nice job of illustrating what is becoming an exceptionally tenuous scenario, but we think it’s worth reposting the following two graphics here as they serve to underscore the deepening fiscal crisis:
As for who's hurting the worst, here's Deutsche's graphic on deficits in the world of "lower for longer":
Note that Oman is among those stinging from the dramatic decline in prices. Well on Monday, the country's oil minister Mohammed Bin Hamad Al Rumhy lashed out at OPEC for - and yes we're going to use this analogy again - Plaxico'ing itself. Here's WSJ with more:
Discontent with the Organization of the Petroleum Exporting Countries spilled into the open Monday, when Oman’s oil minister called current oil production levels “irresponsible” and blamed the group for low oil prices.
“This is a commodity that if you have one million barrels a day extra in the market, you just destroy the market,” said Mohammed Bin Hamad Al Rumhy, whose country produces oil but isn’t a member of OPEC. “We are hurting, we are feeling the pain and we’re taking it like a God-driven crisis. Sorry I don’t buy this, I think we’ve created it ourselves.”
That would appear to be news to influential Saudi Oil Minister Ali Al-Naimi, who earlier this year told CNBC that "no one can set the price of oil [because] it's up to Allah." Back to WSJ:
Mr. Rumhy’s comments came at a conference in Abu Dhabi as he shared a stage with Suhail al Mazrouei, the United Arab Emirate’s top oil official, who is a top advocate of the producer group’s strategy. The remarks also reflect the pressure on OPEC from less wealthy members like Venezuela and Algeria to intervene with production cuts to raise prices, as crude oil trades for less than $50 a barrel—down from more than $100 a barrel in 2014.
On the same day, OPEC’s Persian Gulf producers unleashed a broad defense of their decision to pump full throttle to keep their share of the market, less than a month before the group’s next meeting to decide whether to maintain or cut production.
Mr. Mazrouei defended OPEC’s stance, arguing that production cuts would simply subsidize higher-cost producers in the U.S. and elsewhere.
Yes, higher prices would "simply subsidize higher-cost producers in the US," although as the Saudis have learned over the course of the last nine or so months, the Fed is "simply subsidzing" US producers by ensuring that capital markets remain open to insolvent drillers. It's not as yet clear how long that's going to last, but at a certain point, one wonders whether OPEC might want to consider that if the cost of capital is going to remain low for the foreseeable future, then some of the competition is going to stay in business even with rock bottom prices, so it might be better to just throw in the towel on the whole "let's bankrupt everyone who isn't us" strategy and let the chips fall where they may. It's a cartel after all, so it's not like you can't reverse course again if the competition heats up later on down the road once the budget bleed has been stanched.
The production frenzy has occurred even as American output begins to decline. U.S. producers used hydraulic fracturing technology to foster a boom in crude supplies that helped lower prices, but those operations were generally much more expensive than projects in the Middle East.
In Doha, Prince Abdulaziz bin Salman, Saudi Arabia’s deputy oil minister, rejected the idea that the current period of low prices represents a fundamental lasting shift.
“A prolonged period of low oil prices is…unsustainable, as it will induce large investment cuts and reduce the resilience of the oil industry, undermining the future security of supply and setting the scene for another sharp price rise,” Prince Abdulaziz said.
“Just as the assertions, heard a few years ago—that the oil price would reach $200 a barrel—were proved wrong, so the recent assertion that the oil price has shifted to a new low structural equilibrium—will also turn out to have been wrong,” he added.
And he should know - his government controls prices.
“No one is happy with the current situation,” a Saudi oil industry official said. “The lower oil prices are lasting longer than initially expected and everyone wants the price to bounce back up soon."
Of course there are significant geopolitical factors at play here. The conflict in Syria pretty clearly demonstrates that Russia intends to work closely with the Iranians going forward on everything from military matters to energy. After all, Russia isn't in Syria for nothing and while there's a certain extent to which Moscow is using the war as an excuse to mark a triumphant return to the world stage, Vladimir Putin could probably care less about the perpetuation of Tehran's "Shiite crescent" unless it somehow serves to protect Moscow's energy interests. In that context, note that The Kremlin is using Tehran's influence in Baghdad to muscle the US out of Iraq. With Iran set to boost crude production as sanctions are lifted, and with Iraqi production hitting new record highs, it seems possible that Russia may be looking to exercise more influence over prices to avoid the type of scenario that occurred late last year when the Saudis decided to use crude to pressure Putin into giving up Assad. Indeed, the fact that Riyadh has now begun to go after Moscow's European customers seems to indicate that the kingdom is well aware that a seismic shift may be in the offing. Consider the following from Citi:
The Syrian peace talks in Vienna are reportedly sputtering due to fractious relations between Iran and Saudi Arabia. If the talks fail, from oil markets’ perspective Syria will remain a festering source of geopolitical risk, but the more immediate impact will be to further reduce the possibility of any production cuts getting agreed to when Iran, Saudi and the rest of OPEC meet again in Vienna a month from now.
Iran’s oil minister Bijan Zanganeh has been publicly calling for other OPEC members to cut while broadcasting its plan to announce a 500 k-b/d ramp up at the coming OPEC meeting.
The battle for market share is already fierce, and the return of Iranian barrels is only going to make it more so as record output from Russia and Iraq continue to pressure Asian markets. Saudi market share has been slipping in the region even with a sanctioned Iran and high Chinese SPR purchases. Figures 1-4 show crude imports in Asia (China, South Korea, Japan and Taiwan) by source in % terms with the pattern appearing clear.
Saudi Arabia and Iran have been losing ground to Russia and Iraq. In 2011, Russia and Iraq accounted for 5% of crude imports with Iran and Saudi Arabia supplying 10% and 27% respectively. In August, Russia and Iraq’s share had climbed to 9% each, whilst Iran and Saudi Arabia accounted for 6% and 23%. Even more worrying is the slippage in volumetric terms, with Saudi exports to the Asian-4 totaling 3.2-m b/d in 2011 vs. 3.1-m b/d in Aug and Sept.
Right, but understand that even as both Iran and Saudi Arabia are losing Asian market share to Russia and Iraq, Tehran is closely allied with Baghdad and Moscow while Riyadh is not. That certainly seems to suggest that in the long run, the Saudis are going to end up with the short end of the stick.
Once again, it's the intersection of geopolitcs and energy, and you're reminded that at the end of the day, that's what it usually comes down to.
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Nothing new here -- let me know when the Revolutionary Guards set up shop in Ras Tanura.
This analysis is very good.
There is a huge war over both the European and Asian oil markets.
What's interesting is that 15-20 years from now Asia will be largely fuelled by Aussie LNG. See the Shell PLC grand strategy.
Russia has the advantage of land borders with both Europe and the Far East which means pipelines whereas the Arabs will always rely on shipping.
World War 3 is coming, guess what will happen with America...
http://motivationdose.com/is-america-babylon/
The Houthis need to sink more of the Saudi Navy.
Which is why the Saudis and UAE need that pipeline through Syria real badly !!!!
I am shocked that brutal dictatorships are angry about falling prices for their key export. How sad for them.
It's terrible that they can only afford 355 gold plated diamond studded Mercedes this year.
SaudiPrincesLivesMatter
Guess what that beautiful golden trim and large broach is made of on the tunic seen in that photo of influential Saudi Oil Minister Ali Al-Naimi's tunic.
Looks like they may have entered another higly profitable market.
Lebanon arrests and interogates Saudi Prince over drug smuggling.
http://www.suchtv.pk/world/item/29040-lebanon-arrests-interrogates-saudi...
Let's print some money for them.
Yeah, up to Allah. Markets have nothing to do with it.
Goldman Sachs is doing Allah's work i thought? Confusing/sarc
Goldman has a different Mullah. heha!
Who wants to steal market share at such low oil prices?
Low oil prices are due to Obama's multispectrum war against Russia.
Stakes are high as US plays the oil card against Iran and Russia
http://www.theguardian.com/business/economics-blog/2014/nov/09/us-iran-r...
That and peak debt with declining employment world wide. Well, I suppose it is not peak debt for nations and bankers who invent it.
The answer is obvious, the Saudi's aren't pumping enough. Just remember, jumping out of an airplane isn't dangerous, hitting the ground is, so hey just need to avoid that part.....
But a parachute doesn't cause you to avoid hitting the ground.....
CORRECTION:
Jumping out of an airplane USED to not be dangerous, while hitting the ground was.
In the effort of defraying the risk of hitting the ground, they've made the air far more dangerous. When you have a parachute problem in the air, you have the rest of your life to fix it.
This is a pretty good analogy for what they've done to society.
In the effort to mediate the risk of failure for a few, they've made success impossible for the many.
I think its warped that oil prices of raw crude (Brent) are so low while the pump prices in the UK are acting like its still +110$/b. I wouldn't be shocked if Cameron was personally, cough through tax payer slush funds making up the short fall since the pumps arn't following price
Yawn. More oil, lower prices. Sets up the next great generational buying opp.
How much of Saudi debt flows from its massive support for Sunni terrorism?
Saudi's are one of the main supporters of ISIS. Now that it looks like that the Russian airliner was brought down by ISIS, the Saudis better get ready to pony up a few billion like Lockerbie
It was either the Saudis or Israelis.
It sure wasnt the Egyptians, or some cave dwellers with Kalishnikovs.
Who ran security at that airport?
Because oddly enough, Israeli outfits have had responsibility at more than one airport involved in an attack by 'Islamic extremists.'
So many, in fact, one must either assign to Israelis complicity or gross negligence by now.
"no one can set the price of oil [because] it's up to Allah"
and allah is the jew ruled usa
Well, they played along with the US to harm Russia but when shit hits the fan and they can't restore their price, they'll be at greek debt levels in a decade.
At what point, will the OPEC members want to overthrow the Saudi government?
33% public debt....heck they AAAA compared to the USA
Maybe the oil price will recover if we take in millions of refugees without doing background checks.
https://thinkpatriot.wordpress.com/2015/07/23/us-government-power-is-at-...
If the US government would quietly get back inside its Constitutional box, we could have a nice world. US would have much power because of our productivity and creativity, as we once had, we would have jobs for as many as wanted them and charity for the rest. Government and power and spending are the problems, military is just one.
2000 years after Titus’s 10th Legion ended a previous attempt, a political and investing cabal ofJews are again trying to carve out their own Jewish caliphate.
These people are giving Jews such a bad name. Netanyahu and the American Neoconservatives are making it acceptable to be anti-Jewish, as the neocons have worked so hard to make it acceptable to be anti-Muslim.
And they sold it, it is unacceptable to be at all anti-Jewish in any aspect of being Jewish, especially not political, and acceptable to be anti-Islamic in any aspect of being Islamic, especially the political.
We in the western world have somehow all understood that the Muslims are the threat to us, not the Israeli Jews and largely-Jewish Neocons here in the US aiming the world toward war, leading a losing war for 14 years in a row and killing 100s 0f 1000s of innocents in the process. The propaganda is pervasive, the Muslims are the problem, that is the frame given by MSM to nearly every story.
These are very remarkable triumphs in control of public opinion that are not often remarked upon.
https://thinkpatriot.wordpress.com/2015/11/09/oil-is-the-excuse/
If we kept Muslims out of White countries and if White countries stopped attacking Muslim countries we'd have no problem with the Religion Of Peace.
Rubbish analysis by Russian interests bitching because they hurt more than the Saudis.
In 5 years Saud may be bankrupt but in 2 years Russia will be bankrupt, then the Saidis will let the oil price rise again.
Putin the muppet puppet master done it again for Russia....
But, but, but....Russia is pomping more oil than Saudi! And Russia is taking over the M East!!
And Putin is a tactical genius. So there.
I remember when a single terrorist attack in the middle east would move the price a the pump up a few cents. Now we have a major war and the price is as low as it can get.
I have noticed something weird here in Atlanta.
Typically I drive between 50 and 100 miles round trip to work depending on which office I'm going to. And normally - which means for the past ten years I've lived here, the gas prices have huge swings among the different locales. For instance, downtown the gas will run about fifteen cents on the gallon more expensive than it does for our north office which is about forty-five miles outside of town. And where I live - which is about twenty miles from town, but thirty miles from the north office, gas runs about ten cents per gallon more expensive than the north office, and five cents less than downtown. I can typically see it on my drive to work - the farther from home or the downtown office I got, the cheaper gas would be. The difference was so great that I would strategically plan my fill-ups for when I was at the north office location.
Two weeks ago, this was the case. Gas near the north office was running $1.89-ish per gallon. Where I live it was $2.05 to $2.10 or so. And downtown it was $2.10 to $2.25. Since then, the prices at the north office and where I live have risen and prices elsewhere have dropped to a median of around $2.20.
The same thing happened the last time prices started dropping into the $1.80 range everywhere. Suddenly, every station everywhere had gas at $2.15 to $2.20. No matter where I drove or what station it was, the price was the same. The QT would have the same price as the Chevron across the street - which is NEVER the case. QT is always cheaper even if only by a nickel.
Now, they are all basically the same - maybe a penny here or there, but other than *very few* outliers, they are all the same.
Yes, I'm a bit OCD about it - I just notice patterns, and breaks in them. It's what I do.
CDO .... the way it is supposed to be........ FIFY
http://m.liveleak.com/view?i=fd7_1447058458
As a US airforce tactical targetting specialist, I am greatly perturbed by your claim that there was an ISIS convoy travelling on the road. All I could see was an empty road. What a pointless video.
I$I$, the last blood-soaked act of the dying Saudi Mercan petroscrip dollah, with Toyata liver-eating zombies being herded to the slaughter by their Pentacon master.
"Perturbed" indeed!
"US airforce tactical targetting specialist"
No such AFSC. So now, you're a what again?
You mean youre a contractor.
zell?
You're an errand boy...
And its not my claim.
Hard to see all those shiny new vehicles from space no ? Apache was probably out of ammo.. now a warthog would have cleaned things up.
doubt he was a spy too much noise and hard to miss
Hey, let's face it: If you do business with Russia, and develop a good relationship politically, you get a very competent military behind you. Just ask Assad.
Dude are you serious?
Assad has entire country around his ankles. Putin is dropping bombs on Syrian citizens to include civilians and this is a good thing?
BTW.Oil will never hit $100 again. We simply don't need it as much any longer and the world gets more efficient by the day.
Putin's dropping bombs on civilians, huh?
Tell us more, oh reliable and unbiased oracle of all that the American corporate media claims!
http://m.democracynow.org/stories/15660
https://electronicintifada.net/blogs/rania-khalek/israels-extermination-...
Also, because of your brave and consistent anti-Russian stance, it is absolutely clear that you, unlike everyone who disagrees with your sage assessments- are obviously not a paid troll.
$43.30 serves as an important level to create a new bullish momentum. The RSI and other indicators are all lining up nicely for when the support at $43.30 holds.
http://tripstrading.com/2015/11/09/oil-daily-43-30-level-as-trigger/
Satan America's dog Saudi Arabia : We break stone with glass
Comrade Putin, I have the targeting coordinates:
26 38' 28.20 North
50 09' 26.20 East
ALLAH HAS GIVEN YOU THE GO CODE ! Because he is tired of the terrorists fucking up Mohammed's religion. (this message has been approved by the Super Best Friends Club)
https://www.youtube.com/watch?v=bPXVGQnJm0w