Posted on 01/14/2016 4:10:02 PM PST by bananaman22
The great Kingdom of Saudi Arabia—the long-time dictator of crude oil prices for the world—is struggling on all fronts.
The Saudis are losing their proxy wars in both Syria and Yemen; their OPEC leadership is under threat; they are not winning the crude oil price war; and its long-running alliance with the West is in question.
From Saudi Arabia’s perspective, Iran seems to be gaining ground everywhere. Saudi Arabia has several weaknesses that help explain the current anxiety emanating from Riyadh.
1. Saudi Arabia losing its leadership in the OPEC
Saudi Arabia has been the default leader of OPEC; however, despite Saudi insistence to the contrary, the U.S. shale boom, increased Russian oil production, and a very resolute Iran are challenging this leadership.
The result is that Saudi Arabia now finds itself powerless in supporting oil prices. Instead of the much-needed production cuts, during the 4 December 2015 meeting, the OPEC nations refused to adhere to any ceiling, which has been the practice for years.
(Excerpt) Read more at oilprice.com ...
What happens if the Saudi royal family takes all of their wealth and leaves the kingdom to fend for itself?
Maybe they can ask Germany for refugee status. The Saudi royal family is huge, thousands of relatives, all rich. At least they would be paying their way as refugees and not begging handouts.
Then it would just be Arabia again?
Looked it up. Saudi Royal family is about 15,000 family members, although only 2,000 are extremely rich.
Windmills have changed everything....//s
Saudi Arabia’s time is running out. Her enemies are knocking at the door, and her burning oilfields will make Kuwait seem like blowing out candles on a birthday cake.
that oughtta get the price up.
Some of the family supports ISIS being Wahabbist extremists. Te top family bails to Dubai, some low-level prince takes over, becomes an ISIS bastion.
This writer hasn't been paying attention. The problem with OPEC over the years is that it has become a single-country cartel. That is to say, quotas are agreed upon, and the Saudis are the only ones adhering to their quota whereas everyone else produces flat out. And obviously the one place where production cuts are needed to raise prices - the US - is not only not materializing, US production has gone up almost 5m barrels a day, which is massive, when world consumption is only about 94m bpd.
Of course they do, they’ve always hated us. They’ve never been allies, they’ve just moderated their rhetoric using taqqiya to become very rich and buy our national sovereignty.
Nevertheless, by producing flat-out themselves, they are undercutting themselves - unless they have some plan behind their actions.
Don’t they generally do that to wipe out the competition when it gets too close? I am reading about the pooor saudi regime, but it seems like they ARE the ones who decide if production is to be cut.
There was an interview with the Saudi oil minister back when the price drop started, and the Saudis unexpectedly did not call for an increase in price. The minister admitted that OPEC no longer controls the price of oil, for a couple of reasons. First because of the amount of oil that can be produced outside OPEC. If the Saudis restrict output, the gap can be filled by Texas. So the result is Saudi Arabia loses market share. The second reason is that we are on the threshold of having viable replacements for oil used in cars. Electric cars have crossed the boundary of being novelty cars to production vehicles.
Saudi Arabia can't set the price so high that alternatives flood the market. Their only alternative is to undercut alternatives and compete for market share.
This means the price dip will probably last a long time, and every country that stays in power by buying the citizens now will have civil unrest when the money stops flowing.
What he says and what they are doing may be very different.
Suppose they let the price drop, and quietly bought up futures on various exchanges. When they thought they had gone on long enough, and they had driven out as many competitors as they could, then they could cut production substantially. Then they could cash in their futures and get a higher price for their oil.
Such a plan would depend on secrecy, and appearing to be helpless.
Interesting article (zerohedge, I think, I tried but couldn't find it -- but I did notice that when I searched for shia it suggested another four letter word that starts with shi) a day or two ago had a map which showed that almost all of the oil in the ME is in predominately shia areas. KSA is ruled by sunnis, but its oil is in the western, shia, part of the country.
Happens to every dynasty eventually. After several generations, the 'wealth' is spread so thin, (mostly to the undeserving) it ceases to have any influence.
I believe the plan is to get while the getting is good. The Saudis had cut production by 1m bpd before prices started to fall. When prices continued falling after their cuts, they probably figured the market had finally turned, and was starting to fall. Note that 15 years ago, oil prices were around $20 per barrel, and hovered between $10 and $20 for 15 years before that. In fact, it wasn't until 2004 before oil prices moved decisively above $40 a barrel. There's no natural law that says oil prices must be over $40 per barrel.
By the time oil prices started falling in late 2014, the Saudis had cut production by 1m bpd and had no doubt noticed that non-oil commodities had been in a multi-year bear market. My guess is that they saw today's collapse coming and decided to go all out. As it turns out, they were right to sell as much oil as they could at $80 per barrel. People like Harold Hamm of Continental who are predicting that the Saudis will fold are simply trying to justify bad decisions (i.e. borrowing hundreds of billions* instead of issuing stock to finance exploration) and prevent their credit ratings from collapsing and bank credit lines from being yanked.
When commodity prices crash, everyone produces flat out to pay the bills. Whatever dreams frackers and brokerages that line up financing for them have been spinning, oil is no different.
* To maximize personal gain at the cost of incurring significant risk of bankruptcy if Murphy's Law reared its ugly head, as in fact occurred.
I think this is wishful thinking from sell-side brokerage analysts trying to help their beleaguered fracking clients line up new financing to ward off Chapter 11 bankruptcy or Chapter 7 liquidation. Energy sector CEO's are singing the same tune to keep their bond ratings up and avoid having their bank credit lines yanked. They're also trying to keep their jobs, lest their corporate boards remove them from office.
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