Posted on 01/13/2015 8:21:17 PM PST by shepardspie33
The Merriam-Webster dictionary offers this definition for the word capitulate: "to stop fighting an enemy or opponent; to admit that an enemy or opponent has won."
I'm not sure who oil companies are fighting, whether it's oil traders, OPEC, Russia, or some invisible market force, but they're losing. The domestic standard, West Texas Intermediate crude oil, fell below $45 per barrel on Tuesday, while the global standard, Brent crude oil, is now well under $50.
Who is going to stop the bleeding? OPEC is not cutting production, the U.S. is expected to increase output in 2015, and Russia has little choice but to sell whatever crude oil it can just to make money. But someone will have to capitulate if these players aim to halt the slide in oil prices. Energy companies are nervous about a cutback in spending, but so far rigs are still finding work drilling for oil. Who is going to blink first? Depending on whom you ask, oil markets are oversupplied by 1 million to 2 million barrels per day. That creates a problem with oil prices because supply and demand are very inelastic, meaning they don't change very much even if prices change dramatically. Think about your own gasoline usage. If prices fall 50% how much more do you drive? Probably not very much.
(Excerpt) Read more at money.cnn.com ...
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S.A. breaks even at a lower point than a lot of other producers, so by not cutting production they’re wagering that OTHERS facing higher break-even points will have to cut production:
That would mean S.A.’s market share would climb, permitting them to make more money.
Basically S.A. is saying they’re sick of being made the sucker, with other OPEC guys cheating and selling through less visible channels.
Yeah, they probably don’t mind screwing Russia, Iran and the USA.
The demand for petroleum distillates is very inelastic, which means the quantity demanded doesn’t change much relative to price changes. However, the big winner here is industry, espeically those where fuel is a large part of total cost (e.g., airlines, oil-fired generator plants, etc.). My guess it’s not going to be too long before these industries hedge their bets and start arbitraging the price. That will put a floor on the fall.
The countries that are hurting the most right now also can’t cut production because they need whatever money they can get. Right now countries like China are stockpiling oil, but even that will stop when all capacity is full. At that point, only the cheapest oil will sell. I think production may be cut when whole countries go offline, like Venezuela.
With lowered prices, business will start picking up and demand will increase and prices will eventually rise again. It’s inevitable. It will all come back into a natural balance again.
I bet we could drown Saudi in oil.
Increasing market share in a declining market may not be a viable strategy if making more money were the goal. I don't think it is. I think there are political forces at work here more than economic ones.
the price of gas in Saudi Arabia is about 16 cents last I remember
It is about 2 cents a liter in Veenzuela where it is heavily subsidized
http://www.globalpetrolprices.com/Saudi-Arabia/gasoline_prices/
it won’t be us we are all about oil
And set it on fire?
I think production may be cut when whole countries go offline, like Venezuela.
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venezuela is currently acting like they will be the first ones to go offline.
Saudi Arabia may surprise everyone and go offline. Their king is getting very old and sick, and if there is an internal fight for the throne after he goes, it could get bad for Saudi Arabia.
Iran is in the drivers seat.....they now are in defacto control of Iraq, since without them the suni ISIS would be beheading them Shiite Iraqis by the thousands. Thus we see the Iranians selling as much oil as they can.....knowing that every penny the cost of gas goes down, hurts their arch enemy the Saudis.
My question is where are the Chinese going to get oil from when the Persian Gulf gets closed down? Because the Saudis need to stop this oil slide, they don’t have more staying power than the strong American Dollar nowadays. Saudis close the Persian Gulf through some ISIS proxy action and what will the Chinese do?
Chinese Navy Practicing in the Indian Ocean by chance?
We could break them. But most of America hast lost her nerve. The Arabs are so used to the cash flow they would panic worse than a welfare recipient with a void EBT card.
Its right there on the silver platter, right in front of us.
It’s likely not enough for their needs, but don’t the Chicoms have dibs on most of the non-stolen oil coming from equatorial Africa?
And Iran may or may not in quite as good shape as you imply (I don’t know) They have almost zero refining capacity, do they not?
The odd thing about Venezuela is their very heavy sour crude can only be refined in certain US refineries and possibly some refineries they have on Curacao. Without US refining,. their crap is worthless.
Lots of moving parts in this. I *do* think that the drop in oil prices is quite remarkable and definitely one of the top geopolitical stories of 2014 outside of ISIS. And Ukraine. And Crimea. Oh well, never mind!
Saudi Arabia may surprise everyone and go offline. Their king is getting very old and sick, and if there is an internal fight for the throne after he goes, it could get bad for Saudi Arabia.
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true. but that’s not a surprise I would bet on. The libyans are presently in the midst of civil war and they are producing at nearly 100% of capacity. currently the saudis are about the lowest cost producer on the planet.
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