Posted on 10/21/2014 5:16:54 AM PDT by Kaslin
Despite an administration that has no energy policy, free market forces in the United States are finding a way to provide relief from high prices for an economy that greatly needs the respite. Oil prices are heading the right way for consumers even if the wrong way for the wildcatters, explorers and developers of domestic energy.
It’s been planned that way.
Now that the worldwide economy is slowing, Saudi Arabia is intent on testing American resolve to become energy independent. The oil-rich kingdom has decided on a price war—a method that would be illegal in the United States—to see if American energy companies will shutter operations until prices come back.
“By refusing to lower production significantly and by cutting export prices, “ explains FT.com, “Saudi Arabia has started a price war that it expects to win because of its cheaper cost of production and huge foreign exchange reserves.”
But as the CEO of Breitling Energy, Chris Faulkner, explained to me, it’s a game that the Saudis can’t win.
“We are already see some dissidents in the ranks in Saudi,” said Faulkner, “and the OPEC meeting is now six weeks away.”
Faulkner says that the Saudis and other OPEC nations need $100 plus oil because their state budgets are almost entirely dependent on oil revenues. The move down means that the petro-states are running deficits.
“There are more or less 20 nations that need oil at least for 50 percent of their budget,” says Pepe Escobar an analyst for RT.com. “Among these nations we’ll find especially a mix of African countries and Persian Gulf countries, that includes Saudi Arabia and Iraq as well, Venezuela and Ecuador.”
Many of these states don’t care about market prices, but care greatly where prices are at maximum production for state budgets.
“Venezuela and Ecuador need oil at $120 a barrel,” says Escobar, “they are going to be in a deep trouble. Iraq, for instance, needs around $106-116 – they are in trouble. The problem with Iran is that we don’t have very exact figures. According to these indicators, Iran will need a barrel of oil between $130 and $140…. In terms of Russia, we know how Russia may [be] hurt because for the State Budget of Russia for 2015 it’s around $100 a barrel.”
OPEC countries will meet on November 27th to discuss production and Faulkner thinks that the message from Saudi Arabia will be clear: If the Saudis cut production then everyone else will have to cut as well.The Kingdom is not willing to shoulder the burden of keeping oil prices high for the rest of the oil producers—either in the United States or the rest the world.
So the conundrum that the Saudis face is that if they cut production in the face of weak demand to keep prices high, they are helping to subsidize America weaning itself off of Saudi oil at time that worldwide demand for oil is slackening. If they keep prices low, they run deficits that could be hard to finance in an increasingly chaotic Arab world. Plus they also risk alienating other OPEC members less able to run deficits. A cartel like OPEC is only able to work to the extent that members are willing to go along with it.
Some traders however have speculated that Saudi Arabia may be willing to see prices slide all the way to $70 per barrel.
At that price, says Faulkner, about 50 percent of the wells in the United States will be shuttered.
It makes no difference however. Because the oil won’t spoil sitting in the ground. And it can either stay in the ground or it can be drilled now and stored for later use. While development in the United States—drilling new wells-- may grind to a halt, the mere fact that America has huge proven reserves of oil is already having revolutionary effects on the worldwide geopolitical equation.
Confusion amongst the oil states is just one of the first fruits of free markets here in America doing better what the administration can’t: Provide a real energy strategy.
It won’t be the last fruits.
Enjoy the oil while it’s cheap.
Sooo,
Cheep oil destabelizes opec?
Good deal.
Love to see the saudi, “royals” thrown out like yesterdays cat box.
Cheap oil is bad for Iran at least.
I have a question for anyone with some real insight into the oil business and oil politics. I understand the technology. It is the politics of the oil business that has me mystified.
QUESTION: How have we managed to grow the oil business and oil production in this country with the most anti-oil administration in the history of the world in power for nearly 6 years?
This is not good for those states that are imposing an extraction tax.
Perhaps they are willing to take the painful loss now rather than see further American oil industry improvements. The state of the art is advancing rapidly. If they don’t kill it off now it might be even more difficult later.
The first sentence of this piece is the most twisted and confused thinking. Despite Obama having no energy policy? BECAUSE there is no government policy is the truth. Free market is finding a way? Markets don’t have to some how find a way. That is what inherently happens. Not despite no energy nonsense from the government but BECAUSE.
One salient point is that Obama realized the growth before it was manifest. I guess he had to accept the thoughts of some advisor on faith.
He used it to pacify his wacko base by attempting to mortally wound BP in the Gulf and continuing to develop excuse after excuse to delay the Keystone.
The left and Obama pout and wonder what they have to do to finally wreck America. They run up crazy deficits, weight us down will regulations and laws, and flood us with uneducated illegal immigrants, but God gives us another opportunity. It isn’t time, yet, for us to fall.
It might be tomorrow, but not today.
The oil-rich kingdom has decided on a price war—a method that would be illegal in the United States
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Lowering prices below competition is illegal in the US? Since when?
The American hydraulic fracking revolution has occurred exclusively on private lands. So we have private property laws to thank. Obama was blindsided, by the time the administration realized what was happening, the shale oil revolution was in full bloom. Even the enviros haven't been able to stop it.
Imagine if public properties were opened for drilling, we would surely be independent of foreign oil imports.
We have another revolution on the way in natural gas, a byproduct of shale oil extraction, it's down about 15% in the last two months. This could have even more benefit to the economy, as natural gas is a prime feedstock for most manufacturing in this country.
Some might wonder why the CEO of Total just suddenly died in a plane crash in Russia. He was a big proponent of not using Petroldollars.
No matter if it was an accident or the CIA..there are many who will believe it was the CIA.
The ensuing power shift is going to be interesting.
We’ve been told that the huge new fuel supplies will lessen the price. Basic economics. But, we’re also hearing hints that huge new supply will increase costs...eventually.
Pardon my skepticism, but I see elections looming, I see another drop in fuel at the pump costs, and I see someone giving so-called economics reasons why it’ll be low now and high later.
That was already my expectation, so this just feeds my cynicism. Low up to and for a while after an election. Prices rise back to normal starting about a quarter after the election.
That’s the election-cycle fuel-at-pump price cycle.
I’m so glad there’s an economics 101 answer for that repeated pattern.
Low oil prices is good for our economy, and bad for Russia, Venezuala, the Gulf States (funding Islamofascism) and Iran. So essentially, low oil prices has benefits all around. When you base your whole economy on one product this is what can happen. Too bad, so sad. I suppose the only downside would be if the House of Saud fell and some radical group like ISIS took over. That would be extremely bad...
Good points all.
Also, low fossil energy prices make it even harder for green tech--solar, wind, etc. The only downside here is that we the tax payers are the principal investors in green tech. Also coal industry gets slammed. Again. However the upsides far outweigh the downsides, as you point out.
The lesson of Adam Smith is, as I have always said, is money is a wild animal. It doesn’t like fences, bridles, saddles, or crops. It will run for freedom every time!
How? God is good and he has one hell of a sense of humor! LOL
The writer is not a production engineer.
Once you shut in a well, getting former production rates back is not a sure thing.
That does not even address the problem of infrastructure and equipment sitting idle and deteriorating.
Privately owned mineral rights.
For instance, most of the area where the Bakken/Three Forks production is is private land, with privately owned mineral rights, not Federal Land.
there is no down side to American energy independence. Make it happen!!
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