Posted on 10/14/2014 5:22:07 AM PDT by thackney
...In almost 20 years of writing about oil markets and the Middle East I have not come across anyone who could consistently offer a deep insight into the government's policymaking....
Diplomats and even some economists often assert Saudi Arabia upholds its part of the bargain, in part, by holding spare production capacity with which to meet disruptions in oil supplies from other producers. Only Saudi Arabia has the financial capability and the foresight to invest in spare capacity to help stabilise global oil prices.
The problem is that there is almost no evidence to support this claim. Since the kingdom's exports peaked at almost 10 million barrels per day in 1980, most of the spare capacity has been in the form of reduced output from older fields as new ones have come onstream....
There is no evidence that Saudi Arabia has deliberately developed large new fields simply to allow them to left idle "just in case" there is a supply interruption elsewhere in the world....
Some observers have suggested Saudi Arabia has stepped in to fill the supply gap left by sanctions on Iran and the turmoil which has cut output from Libya, Sudan and Syria.
But Saudi exports have remained broadly stable since 2011, and are essentially unchanged since 2003-4. U.S. shale oil, not Saudi Arabia, has filled the supply gap...
OPEC members accounted for just over 50 percent of world oil production in 1973. In recent years that share has been as low as 40 percent.
The big movements in prices have been the result of production trends in countries outside OPEC, whether the development of Alaskan, Russian, Chinese and North Sea oil in the late 1970s and through the 1980s, or the shale revolution in the United States since 2008....
...Oil prices above $100 appear unsustainable because...
(Excerpt) Read more at rigzone.com ...
Good piece, thanks for posting.
Yes, great article.
So, OPEC is busted, and for this we have US ingenuity and private property laws to thank. Can’t forget Canada.
The Saudis and the rest are powerless to control the drop in crude prices, and are now resorting to accepting and “managing” the decline.
$85 per barrel crude will infuse the economy in a big way. Perhaps an even larger boost will come from cheap natural gas prices we’ve been experiencing for some time.
private property laws
BTTT
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The Saudis and the rest are powerless to control the drop in crude prices, and are now resorting to accepting and “managing” the decline.
I would not say powerless, but rather unwilling to take sufficient cash flow cuts to greatly bring the prices back to $100. But it isn’t in their long-term interest to have spikes up or down.
I agree with the article that low oil prices will hurt US shale. If the price goes to $80, shale will be cut back (barring drilling efficiencies). This is most likely the reason Saudi is supporting lower oil prices.
But there is other benefit for the Kingdom:
Low oil prices hurt Iran that needs USD to support bloated national budget and operations abroad. Saudis are not happy with Iran's influence in Iraq
Low oil prices are hurting Russia. Saudis generally do not like Russia and there support of Shia/Shiite Muslim governments fuels this dislike. Russia needs oil high to support the ruble, government handouts, wars and investment needed in Crimea.
The beauty and profundity of the shale drilling boom in the US is that it has marginalized OPEC and the Saudis even more. Each OPEC producer in its won right is only a market taker not a market maker of prices. OPEC as an oligopoly has only coordinated on pricing when supplies were tight. As supplies increase OPEC becomes even less important (in terms of price setting) than in the past.
I’d like to see zoning returned to private property laws. Owning land has become a rich man’s game precisely because of all the government interference. Landlording in most municipalities is akin to being a criminal.
Kemp gets it wrong here: the result of planning errors rather than deliberate policy.
Central planning is always deliberate. They always think they can carefully manage things. The result is planning errors. You cannot cheat the market.
They’re also trapped by Islam and the monarchy. Islam is by its nature socialist and fatalist. Those are terrible philosophies for growth and human improvement. The monarchy must balance all this keeping people happy and keeping themselves at the top.
An energy breakthrough in the US, in addition to oil, will further undermine ME oil, particularly Saudi. Egypt is a Saudi dependent. So are a variety of other countries. It’s a mess.
If Millennials permanently abandon the automobile then what?
All my adult life it’s been a vital US interest to ensure the free flow of Mid east oil.
Now... suddenly it isn’t!
Heck, not counting a lot of peripheral matters, it’s now against our interests. We profit if Saudi Arabia has a problem delivering oil.
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