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OPEC Members In Jeopardy, How Long Can They Hold Out?
Submitted by Colin Chilcoat via OilPrice.com,
Where’s the floor? Is this the new normal? Answers have proven elusive and predictions unreliable as the oil market continues to lurch to and fro, though mostly down; oil is at an 11-year low.
Looking forward, bears and bulls abound – panicky and glued to OPEC’s every, somewhat disjointed move. For its part, the oil-producing cartel is grappling with an existential crisis. To be sure, OPEC isn’t dead and it hasn’t lost its market moving capabilities, but disagreements over how to apply those means – and a creeping suspicion that OPEC and non-OPEC pain thresholds are not mutually exclusive – have fractured the group.
As it stands, OPEC is producing roughly 31.70 mbpd – up 1 percent from November, and more than 5 percent from a year ago. Record volumes from Saudi Arabia and Iraq have buoyed production to date, but Iran’s oil industry is heating up as the country, and global investors, prepare for life after sanctions. According to OPEC’s 2016 demand projections, the cartel’s supply surplus could reach 860,000 bpd if current production rates hold.
Globally, signs of the glut are everywhere, and growing. In the U.S., crude inventories are at their highest level in 80 years; stockpiles are at 97 percent of capacity in Western Europe; and OECD oil inventories are more than a quarter of a million barrels above their five-year average. Onshore crude storage space may run out in the first quarter of 2016.
As a result, OPEC revenue is down some $500 billion a year, and counting. Saudi Arabia’s troubles are well documented – the kingdom’s budget deficit is expected to come in around 20 percent of GDP this year, with a similar outlook for 2016. The International Monetary Fund estimates that Saudi Arabia will run out of cash in five years barring any oil price turnaround or drastic spending changes. That being said, they have cash – as do Kuwait, Qatar, and the United Arab Emirates, who possess relatively large fiscal buffers.
Elsewhere, Venezuela is caught between China and a hard place. Inflation is in triple-digit territory and the country’s economy is primed for a world-worst 10 percent contraction this year. Recent elections have paved the way for major political reforms, but the country has few weapons in its arsenal to combat a prolonged period of low prices. Chinese financing has become a precarious crutch against stagnating production, and we can expect to see more of it as Venezuela feverishly attempts to boost production of heavy Orinoco oil.
Speaking of Chinese financing, OPEC minnow Ecuador owes the Asian giant upwards of $5 billion. Ecuador is faring better than Venezuela – it recently honored a bond payment in full for the first time in its history – but the country’s long-term relationship with China is a case study in toxic friendships. Low oil prices, a strong dollar, and faltering diversification efforts, further limit President Rafael Correa’s hedge opportunities against both Chinese money and a disgruntled populace at home.
Back across the Atlantic, top African producers Algeria, Angola, and Nigeria have an average fiscal break-even price of nearly $110 per barrel; and all three have called for production quotas to be restored amid tumbling government revenues. Planned spending cuts, decent foreign reserves, and little foreign debt ease Algeria’s struggle relative to its OPEC brethren, but its massive welfare program is worrying long-term. For its part, Angola is expanding its long-term sales deals with China, using its oil as collateral in return for infrastructure improvements.
Nigeria is in perhaps the most dire straits of the group – Libya aside. President Muhammadu Buhari would like to extract more revenue from the nation’s vital offshore oil fields, but his untimely review of the fiscal terms has sparked tensions among already anxious investors. The ongoing reform of the oil industry has already cost Nigeria more than $50 billion in investments, and threatens to deter some $150 billion more over the next 10 years. In all, Nigeria’s oil output could drop as much as 15 percent by 2017 as a result of cash shortages and investment gaps. Long-term, the focus is on the state’s non-oil economy, particularly its solid mineral sector, which has great potential for growth.
The Saudi strategy has yet to bear itself out, but early indications suggest it is generating returns. Non-OPEC supply is expected to suffer its steepest decline in two decades in 2016, at a drop of nearly 0.5 mbpd. Moreover, U.S. shale producers are among the hardest hit. Oil production across the seven most prolific shale plays is expected to plummet a combined 116,000 bpd in January 2016.
Still, the strategy is not without sacrifice, and several OPEC members are struggling to find – and, more importantly, endure – that magical balance between non-OPEC pain, market share retention/growth, and self-inflicted damage. Their tipping points are nearly impossible to predict, but there will be more losers than winners in this game of brinksmanship.
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Not to worry. Once ISIS is on the run, they'll be torching the wells as they leave.
US "foreign aid" only to countrys that buy our oil.....at our price.
USSA oil exports more likely to go to Latin America than Asia
http://www.bloomberg.com/news/articles/2015-12-18/asia-s-problem-with-u-s-oil-is-it-s-too-good-pricey-and-far
Why do I get the feeling Saudi Arabia is going to end up a smoking hole in the ground before this over?
The 4th Reich agenda rolls on unabated......
http://beforeitsnews.com/conspiracy-theories/2015/12/as-events-spiral-ou...
The lower oils price moves, they gotta pump
More to offset lack of revenue. http://hedgeaccordingly.com/2015/04/how-much-longer-can-opec-hold-out-us...
It's a circular firing squad and they are going to keep on going till there's nobody left standing.......
Screw OPEC with a capital Fuck You!
http://www.cnn.com/2015/12/18/us/virginia-school-shut-islam-homework/
2016 is shaping up to be explosive...literally.
As usual, another worthless, propagandist article from OilPrice.com
It is Obama's oil war against Russia and Putin. Saudi Arabia is a red herring.
Stakes are high as US plays the oil card against Iran and Russia
John Kerry, the US secretary of state, allegedly struck a deal with King Abdullah in September 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. Then, the geopolitical motivation for a move that sent the oil price to below $10 a barrel was to destabilize Saddam Hussein’s regime. This time, according to Middle East specialists, the Saudis want to put pressure on Iran and to force Moscow to weaken its support for the Assad regime in Syria.
http://www.theguardian.com/business/economics-blog/2014/nov/09/us-iran-r...
Agreed.
I especially laugh about the single picked "toxic friendship" - isn't he missing a few other ones?
Generationally low oil prices have not yet done all the damage they need to to wipe up the marginal producers. Tar Sands mining still goes on and frackers frack and pump. Deep water projects are on the other hand not going forward like they we planned. The glut was partly due to the USA and Canada making a concious decision to go forward with high cost extraction as a long term economic policy, meant to continue for decades to come.
When these prices has bankrupted and shut down marginal producers, then prices can creep up again, we are far from that point!
The USA and Canada both seem remarkably unconcerned with their long term energy plays being slammed by OPEC production. This makes me think the Neo-Conservative's power in both nations are able to overpower economic concerns. And the West will just keep on hoping to crush Russia under record low energy prices. This works is Russia does not react with vigor to the changes wrought on them. For now, the import replacement programs in agriculture and manufacturing seem poised to hire millions of people over the next decade. That can't be all bad!
Saudi Arabia in unlike Russia. Saudi is full of fat lazy drug addicted shieks and their slave whores and servants living in a wasteland covering oil reserves. Without oil the Saudis are nothing!
Correction:
Some oil sands production is costly.
Other major production is less than CA $25.00.
Another major is less than CA $20.00
With the $CA at .71 to a US $ (and falling) and oil trading in $US, about a million barrels a day has a way to go before it is uneconomical.
"How long can they hold out?" WRONG NARRATIVE, MF'er!
Try: "How long before they ditch that Dollar-bitch in unison?"
Until that happens, until they trade with other currencies or price Oil in PM, until they leave SWIFT and settle via CIPS or something else, their collective ride to hell will continue.
The same is true for ALL currencies -- even the EUR, AUD and CAD, come to find out. To illustrate, let's use a couple of analogies...
1. If you're using a measurement ruler that varies in length, like some damn bungee chord, then the problem is the effin 'Ruler', you nitwits. Actually, it's YOU who is the real problem, for still using said Ruler.
2. It a teacher or prof keeps failing almost the entire class, then maybe you got the wrong teacher, you damn sheep!
When will People/Sheeple ever learn? Do a People literally have to be on the verge of civil war, before they get off their complacent, lazy, scared asses, and actually DO something? Like the French did in the late 1800s, i.e. [cue X-mass song] "You're making a List, you're checking it twice, you're making sure who's been naughty and nice, the Guillotine is coming to town"
And like I've been saying for weeks now: "When will the Chinese or Russian equivalent of SWIFT (CIPS, RIPS) be Online for the world to use?" Have the US delayed or corrupted that effort as well? If so, you MFers deserve everything you get: Vassal status and slavery.
Merry effin Christmas, vassal bitchez!
'Merry effin Christmas, vassal bitchez!'
I think it's your last line that provides the answer to your questios - religions turn people into slaves.
The newer the religion - the more totalitarian (they evolve as the kleptocrats in charge and their priestly demagogues learn from older religions from which it evolves)
Man.....wouldn`t you like to have your finger on the oil production switch, so you know when to go long on oil?......
You think Saudi princes are rich now......wait till they decide to throw oil prices into reverse........
sorry but technology beat them...the US and canada produce more. Venzula has more oil...and throwing socialism away. Oil is going SINGLE DIGITS
Perhaps......but its still manipulated for someones benifit.......
who is looking forward to single digit oil....way too much supply and too many have bills to pay....Good Think Comrade Obama was smart enough to bring Iran to the table...plus they get bonus nukes.
Bullshit. IMF says Saudi is solvent until 2020 at $40/b. This does not count their ability to issue bonds. The other gulf nations are even better off. If you think they are going to turn back now, when they are so close to crushing US shale, you are high on hopium.
Don't worry, Algeria's foreign reserves are going to be safeguarded by the new austerity law they are passing to ring in the New Year.
GET. YO. POPCORN.
In a global depression, which is what's for dinner, bitchez, everything is cheaper, and that includes OIL. Maybe especially oil, the stuff that makes evrything go.
Get used to lower prices, bargaining for the best price, barter and a return to sanity.
Take a hard look at the Great Depression. People suffered, but people survived. Same shit, different century.
Oil, like fiat, is fungible.
Oil exporters are being weakened before invasion maybe. Saudi will get bailed out if Putin doesn't smoke their asses.
Someone, somewhere, is going to take out major production before much longer.
The only questions are whox2, when, where? And how much?
In the oil bust of the mid 1980s, traders didn't wear fucking man-buns on their heads or goddam disks in their earlobes accented by fucking tribal tattoos. The sure as fuck didn't wear dayglo orange tennis shoes and some fucking foreign country soccer jersey to work. And they didn't dare wear a hated flat brimmed ball cap trurned to the side! We wore fucking coats and ties and hung out at classy tittie bars with our Japanese brethren who came to our shore for a strong dollar and Korean company at Yosemite Sam's club in Houston. There were no fucking natgas traders with their capital destructing manipulative schemes. Those smarmy bastards now all wear the same horizontal striped golf shirt to work and they shave their heads even though they may not need to do so. There were no fucking quants with their "skedastic" verbiage! Goddam it, "skedastic" was a descriptive adjective used to describe how fast a Midland oil producer could exit his side piece's bathroom window when her fucking tool pusher husband came home unexpectedly! As in, "Man, Ricky John at Charter can skeedaddle when he has to can't he? That's some skedastic ability!" I survived 1986, 1998 and I'll survive this one adorned with my gold Presidential and my khaki Sans-a-Belt slacks and french cuffed shirts. And, all you young shits think "french-cuffed" is a sexual position encouraged by products traders and their "mil-brokers"!