Posted on 10/29/2014 4:57:19 AM PDT by thackney
Opec is likely to let the price of oil slide further as it gambles that US shale oil producers will be forced to slow production first.
The oil cartel, which includes a number of Persian Gulf states, as well as Nigeria and Venezuela, has remained silent as oil prices have tumbled over recent months. Some analysts have predicted the oil producers club will decide to reduce production at its next meeting, scheduled for November, in a bid to maintain price levels at around $100 a barrel.
Yet, with a barrel of crude oil currently at $82.37 (£50.90, €64.69), the member states have so far shown no public sign that production will be cut.
In fact, it seems likely that production levels will be maintained. Signs from the world's biggest producer, Saudi Arabia, released anonymously to carefully selected journalists, suggests that the kingdom is happy to let prices slide. It seems that Saudi and other Opec members look to be content with guarding their market share from rival producers, the biggest threat being posed by US shale companies.
The rise of US shale oil production has altered the dynamics of the global oil trade, perhaps irrevocably. US shale has entered the market at a time when prospects for global economic growth are particularly grim. The Eurozone has shown signs that even with unprecedented assistance from central banks, a prolonged period of stagnation awaits.
Meanwhile, China's economy is showing signs that decades of runaway economic growth are a thing of the past and it has entered a period of slowdown. Recent data from the country's National Bureau of Statistics showed the country's economy had just grown at its slowest rate since the 2008 global financial crisis.
The US economy may have shown some signs of recovery in recent months, with GDP set to increase by around 2.8% this year, but it is still reliant on massive support from the Federal Reserve. Moreover, the domestic shale boom has seen the US importing less oil from overseas. Oil imports are down from a 2005-2006 high of 10 million barrels of per day (bpd) to around 7 million bpd in 2014.
Against the backdrop of relatively weak global demand for oil, rising shale production has distorted the well-established energy flow networks. US shale production has risen by 500,000bpd since the summer and is expected to push 10 million bpd by the end of 2015.
While much has been written about Opec's falling pricing power in the face of the US shale boom, Opec producers could withstand lower oil prices than US producers.
Analysts are divided over what price level would cause US producers to reduce output. While prices of around $80 to $90 a barrel may not hurt US shale producers that are already running, they would affect investment in the industry.
Citigroup has forecast that prices would have to fall as low as $50 a barrel in order to stop production growth. However, Goldman Sachs suggested that oil production could slow if oil prices were to fall by another 10%.
"US shale is the marginal swing barrel in the new order," Goldman said in a report, adding that production could slow down if prices of WTI hit $75 a barrel.
Opec is a diverse group of oil producers with vastly differing abilities to withstand a prolonged period of low oil prices. Whereas Saudi Arabia could fulfil its current budgetary requirements with prices at $89 a barrel, fellow member Iran requires prices closer to $130 a barrel, Libya requires prices of around $185 a barrel, while Venezuela needs a price of around $161.
Despite the economic difficulties in Tehran and Tripoli, Opec is unlikely to cut production in a bid to raise prices, as the fear that US shale gas would grab part of the market in the interim outweigh any short-term pain.
For its part, Goldman Sachs does not expect Opec to reduce its production levels until US production has already slowed.
"Any near-term Opec production cut will be modest until there is sufficient evidence of a slowdown in US shale oil production growth," it said.
No worries, if OPEC takes oil below $60, Obama will write an executive order to raise the gas tax.
Texas oilmen can take care of themselves. Don’t bet on OPEC in this contest.
Never thought of it until now but ... what a great place to have a disaster ... or a take-over.
This is economic, not a physical invasion.
Well, it’s not “free”; frankly, I hope that things settle to a price that allows conservation and exploration to continue.
Social-Economics, like that in the EU, is what will keep American Oil in production - at some point the local jobs even in globalization are not exported but brought home in order that money can be kept inside the country. OPEC welcomes oil from new sources, because they could be investing heavily rather than competing. This is the Epic Fail of Opec in that they tried to corner the market(s), rather than be an investment player in all of them.
“No worries, if OPEC takes oil below $60, Obama will write an executive order to raise the gas tax.”
Actually, I’d be in FAVOR of it, but only if:
1. Some was spent on replenishing and expanding the oil reserve.
2. Every remaining nickel went (efficiently) went into roads and infrastructure.
Too bad that the government has proven itself to be absolutely incapable of spending money wisely.
That might be true of some of OPEC, but the player that matters, Saudi Arabia, has been building one of the largest refinery/petrochemcial complexes in the world for many years in Jubail.
How big do you think it needs to be? Size related to overseas imports? How many days supply from OPEC?
http://www.aei.org/publication/petropreneur-harold-hamm-summarizes-profound-implications-great-american-shale-revolution/
The U.S. produces more oil than Saudi Arabia
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No. US oil production is up to 8.5 MMBPD.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=M
Saudi Arabia produces 9.8 MMBPD.
http://www.eia.gov/countries/country-data.cfm?fips=SA
But when it comes to affecting global market price, the main difference is:
We import 7~7.5 MMBPD of crude oil.
http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epc0_im0_mbblpd_m.htm
Saudi Arabia is exporting 8~8.8 MMBPD.
There’s more shale than they’ve got of easy, cheap oil. Let’s have an economic boom on their cheap oil, and shut in the shale production. Then we’ll be the new oil kings!
shut in the shale production. Then we’ll be the new oil kings!
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Something wrong with that concept....
” Every remaining nickel went (efficiently) went into roads and infrastructure.”
The pensions of road construction workers maybe.
The cheaper the better for the economy.
Well, there was some sarcasm involved.
It’s just that I don’t think the Saudis are willing to run flat out for long enough to make a real long-term difference. I don’t think they can, and cheap oil would wreck their economies while benefiting industrial ones like ours, the Chinese, and the Japanese.
I don’t think the Saudis are willing to run flat out for long enough to make a real long-term difference. I don’t think they can,
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We agree. But there may be some short-term (1~2 year) fallout that will slow down US investment into shale production. Slow it down, but it will still grow, just at a slower pace. That would not be all bad.
I wouldn’t be surprised if there was some fedgov action taken against the frackers on behalf of OPEC.
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