Despite Pain, OPEC Hawks Come Round To Merits Of Riding Out Oil Slump

Reuters via Rig Zone ^ | December 17, 2014 | Alex Lawler

[thackney]

OPEC members which backed an output cut at the group's meeting last month are coming around to the view of Saudi Arabia that they need to focus on market share, further reducing the chance of any action to defend prices.

While Venezuela - which campaigned for output cuts in the run-up to the Nov. 27 meeting - has continued to call for measures to prop up prices, other nations which usually back such action such as Iran and African members have been silent.

"The producers have not blinked. We are just watching and selling oil at whatever the price is," said a delegate from an OPEC country which in November had wanted an output cut.

This means there is greater unity behind the view of OPEC's core Gulf producers, which signalled this week they are prepared to wait as long as a year to see the market stabilise, despite a plunge in prices to below $60 a barrel, the lowest since 2009.

Oil's fall from this year's peak of $115 a barrel in June is particularly painful for countries such as Venezuela, Algeria and Iran, which need prices above $100 to balance their budgets...

[Red Badger]

They are having pane at the pump?.............

[thackney]

Venezuela, Iran and others that subsidize their own fuel with sales to others sure are.

[Red Badger]

Gooood...................

[Teacher317]

They produce less, we produce more. I see no problem with this.

[thackney]

They produce less, we produce more. I see no problem with this.

The article is talking about them NOT making a cut in production.

[ryan71]

Is it possible that Obama is working with the Saudis to kill American oil?

[Captain Rhino]

Didn’t certain OPEC members actually increase output in order to depress oil prices?

There have been articles in the last two or three months about Saudi concerns that the OPEC “oil weapon” was being undermined by cheaper US oil and that crashing the oil price was a way for OPEC to put these US producers out of business. Since OPEC economies and social service networks are heavily dependent on the on-going flow of oil royalties, the question is how deep a price fall and how long can it be sustained.

I would imagine that the Saudis have enormous cash reserves and can sustain the pain for a while. The other OPEC states, not so much.

Since this is an economy of scale/production issue, I’d support using every last drop of OPEC oil at bargain basement prices while holding our domestic oil in reserve for the day when OPEC production falters, the price rises, and we reverse the flow of petrodollars from low cost outgoing to high cost incoming.

[thackney]

Didn’t certain OPEC members actually increase output in order to depress oil prices?

No. Most OPEC members are arguing to cut production, not raise it. But they also expect Saudi to make most of the cut, like always.

Typically they cheat on their share of the cut and let Saudi finance their increased revenue.

Saudi is unwilling to do so any more. They have also made statements that other nations need to get their government spending under control and not expect to continue to hold the world hostage to pay for it.

I'm not trying to claim Saudi's our are friends or working for our best interest. They are not; they are looking out for themselves. But their goals are long term, very long term.

[thackney]

I leave the conspiracy theories to others.

I don’t see Saudi needing anything from Obama. Their goals are far more long term than his time in power, in my opinion.

[Captain Rhino]

No. Most OPEC members are arguing to cut production, not raise it. But they also expect Saudi to make most of the cut, like always.

I preface what I am about to write by noting that my undergraduate degree was in HISTORY, so my understanding of market dynamics maybe not be entirely accurate.

That said, as I understand it, the basic mechanism for falling prices is either: 1) level quantity of the commodity and a falling demand for the commodity, or 2) level demand with an increase in the amount of the commodity available. Either situation results in an oversupply of the commodity and downward pressure on the price.

Since 2) is approximately the current situation and OPEC is maintaining current production levels, where is the oversupply coming from? Non-OPEC oil producing states (principally the United States)?

As for the Saudis, I agree they do play the long game and can afford to protected as they are by their considerable sovereign wealth funds. Moreover, all of the Gulf States are very adroit in infiltrating and corrupting influential Western institutions (government, academic, and private). That's what makes them all so dangerous.

[thackney]

US and Canada supply most of the oil growth, and has been for the past couple years.

Combined with forcasted Global Demand to slow growth, while US/Canada production still forcast to grow.

EIA expects that global liquid fuels supply will continue to outpace consumption, resulting in an average stock build of 0.4 million bbl/d in 2015. Stock builds are expected to be concentrated in the first half of the year, averaging 0.7 million bbl/d during this period. EIA forecasts global liquid fuels supply to average 92.8 million bbl/d in 2015, 0.2 million bbl/d lower than in last month's STEO. The 2015 global demand forecast was also revised downward by 0.2 million bbl/d to an average of 92.3 million bbl/d, based on weaker global economic growth prospects for next year.

[Captain Rhino]

Thank you for taking time to extract this information from the EIA website. It and the website are very insightful.

[thackney]

You are welcome.