Posted on 11/30/2014 9:20:33 PM PST by Vince Ferrer
Saudi Arabia and the core Opec states are taking an immense political gamble by letting crude oil prices crash to $66 a barrel, if their aim is to shake out the weakest shale producers in the US. A deep slump in prices might equally heighten geostrategic turmoil across the broader Middle East and boomerang against the Gulf’s petro-sheikhdoms before it inflicts a knock-out blow on US rivals.
(Excerpt) Read more at telegraph.co.uk ...
Just need to make more cars and sell some of out refined crude to our stab-in-the back Euro weenies.
Calling Caracas? Anyone? Anyone? Maduro?
Maduro isn't here. He's sleeping in his fully fueled airplane, with a flight plan to Rio.
Demand for oil and almost all commodities is sluggish because contrary to Government proclamations the economy is simply not robust. If it were demand and consumption would be an upward pressure on prices. The Saudis would love to see these prolonged low prices diminish production and investment in shale oil extraction. However the Saudis are subsidizing Egypt and other Muslim countries. They will produce whatever volume of oil necessary to maintain their net income. Very good for consumers and ultimately a boost to the economy.
Probably. I remember the last time the bottom fell out on oil. Late nineties, it dropped to about $8 a barrel. All over the world there were revolutions, coups, blood in the streets.
We can survive rock-bottom oil prices. One-industry countries can't. It gets bloody.
I remember that. For a couple of weeks, gas was under $1/gal. where I live.
BOOM GOES FRACKERS, BOOM GOES HIGH YIELD DEBT, JUNK BONDS IMPLODE< BUST GOES THE ECONOMY, AND THERE GOES THOSE FREAKIN TOO BIG TO FAIL BANKS AGAIN, JUST LIKE IN 2008 — PLUS VENEZUELA, RUSSIA, AND THE NORTH SEA ALL SWIRLING AROUND THE TOILET BOWL. Gold cratering, all currencies weakening, silver weakening, China slowing and moving all $ not nailed down to US apartments and hotels.
Saudi Arabia is blowing the tail off their own airplane. Brilliant!
Interesting deja-vu all over again article here: http://theeconomiccollapseblog.com/archives/guess-happened-last-time-price-oil-crashed-like
I don’t think this will do anything other than domesticize American gas and cheapen it - hurting foreign oil.
“Saudis will not be making friends by this action in the middle east.”
Personally, given their direct involvement in 9/11, I’d consider it just repayment having all those “fat freddies” in the House of Saud swinging from a gallows rope. Ditto for the “leaders” of the Trucial States as well.
I run a wireline truck and am currently on a frac location in the Eagle ford. The numbers being thrown around for breakeven in the eagle ford is $55 a barrel. That is with the current pricing structures for service companies already in place. I see a lot of waste and areas these producers can and will cut to streamline effeciency. Some companies with high debt companies wont fair so well and will be bought out or go bust. That will create pricing pressure on service companies that frac, wireline, or any of the other number of service companies needed to drill and complete a well and their price will go down. The larger players like EOG, or Marathon will get their price per barrel down even further and will do just fine even at a lower profit
margin. Some service companies like schlumberger and haliburton will use this as an opportunity to shake out a lot of the independent service companies and they will get through this with a larger marker share. Shale oil isn’t going anywhere even if we go through a hard couple of years. As for Saudi Arabia, well they can piss off. American ingenuity created the shale revolution in this country and American ingenuity is going to see it continue.
And, by extension, the rest of the middle east.
Stay warm !
I worked in the oil fields for 17 years and saw two boom and bust cycles. You are 100% correct in your analysis. When the price of oil goes down, the price of production goes down.
I thank the Saudis for lower oil prices. I understand their logic. It will not work.
When this last happened at the height of the cold war in 1985, it followed a visit by then Vice President George H. W. Bush to Saudi Arabia. Bush convinced the Saudi royal family it was in their best interest to reduce the price of crude oil to regain market share. As a beneficial side effect, Russia would lose a major source of foreign exchange. This followed a major investment by Russia in radar capability, which was largely negated by the publicity of the US then recently developed stealth technology. With reduced foreign exchange, Russia was unable to replicate the stealth technology and the Soviet Union failed. Unfortunately, the economies of the oil producing states, Texas among the most extreme example, were crippled.
This time around, Obama has visited Saudi Arabia twice this year, Bidden has called the Saudi royal family once and the UAE twice. This time it appears the primary objective is to cripple the oil producing states economies, principally Texas, which has been a thorn in Obama’s side. The beneficial side effects of reducing Russia’s foreign exchange, increasing Saudi market share, and reducing the foreign exchange of Iran, along with the positive effect on the economies of states more aligned with Obama, are perhaps just that, side effects.
By the way, crude prices dropped from a intra day high of about $32 in 1985 to a intra day low of $8 in 1986. That is a 75% drop. Prices did not return to $32 on a sustained basis until 2003.
+1
“Saudi Arabia is blowing the tail off their own airplane. Brilliant!”
Yah, let’em nose dive. Another benefit of the U.S. Oil boom is that we (U.S.) may not feel compelled to defend the Shiekdoms from future aggressors. Will be too funny to watch :)
Russia not going to like cheap oil?
Arabia can afford diminishing income as a price for disabling the Iranian economy and reducing ISIS’s income. It doesn’t hurt that Russia is constrained a bit by it, also.
Some service companies like schlumberger and haliburton will use this as an opportunity to shake out a lot of the independent service companies and they will get through this with a larger marker share.
BTTT
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