Posted on 12/18/2014 5:26:45 AM PST by thackney
The head of Mitsui & Co., a big energy investor, said he thinks the U.S. and Saudi Arabia are working together to keep oil prices down in an effort to hurt Islamic State and Russia.
Masami Iijima, chief executive of the Japanese trading company, spoke in an interview as crude oil was trading near its lowest level since May 2009. He said the recent decision by the Saudi-led Organization of the Petroleum Exporting Countries to keep production at current levels, which triggered the oil-price plunge, would particularly hurt Islamic State, the militant group that has seized parts of Iraq and Syria, including some oil fields.
“They’ve been selling oil to a certain extent at a discount, and the advantage of that discount has now completely disappeared” because inexpensive oil is available elsewhere, he said in an exclusive interview with The Wall Street Journal. “It has the effect of cutting off Islamic State’s source of funds.”
Mr. Iijima said of the fall in oil prices: “I have a feeling that Saudi Arabia and the U.S. are moving ahead with this as part of substantial mutual discussions.”
Representatives of the U.S. and Saudi embassies in Tokyo didn’t immediately respond to requests for comment. Saudi officials have said they base their decisions on economics, not politics.
Saudi Arabia and the U.S. are allies in working to stop Islamic State’s spread, while the U.S. has led the effort to impose sanctions on Russia, a major oil producer, over its aggressive actions in Ukraine.
Growing U.S. energy independence is helping feed Washington’s harder line on Moscow, Mr. Iijima said. “The way the U.S. is beating on Russia is amazing,” he said. “It’s no problem for them if they don’t get any energy from Russia.”
(Excerpt) Read more at wsj.com ...
In my perhaps naïve view, the drop in oil prices and subsequent pressure on Russia and ISIS and others is not a planned effort, but a happy side effect of plain old market activity.
(Mainly because I don’t think this administration could pour pee out of a boot with the instructions printed on the heel — nevermind orchestrate an oil price downturn.)
What do you think, thackney? You’re more informed about oil markets than am I.
The reality is that the Saudis despite falling prices are producing whatever amount of oil that is necessary to maintain their income. They have huge ongoing cash requirements as they are subsidizing Egypt and other Sunni clients. Without the Saudi aid, the price of food and other essentials would skyrocket. There would be hunger and political chaos in Egypt. This situation underscores just how precarious “stability” is in the region. The Saudis know that if Egypt devolves, the terror of the “Arab Spring” will sweep them as well.
I agree.
I agree, too. Besides-at this point, WHAT power on earth would/could trust the US to conceive, execute or hold-to a policy of ANY kind?
Mr. Iijima is saying what many US oil company executives are thinking.
As with most foreign policy, there are two possibilities: stupid, and clever.
Stupid: The Obama administration has stated its goal of raising oil prices in general and gasoline prices in particular, as part of its efforts to make Americans suffer European/Japanese-level gasoline prices, and switch over to alternative energy sources, which are not-coincidentally owned by administration cronies and subsidized by tax dollars. All the administration efforts to block the production, refining, and distribution of fossil fuels—not fracking on government land, blocking Keystone XL, destroying the coal industry, etc.—were pointed towards that end. The administration, however, finds itself blindsided by the massive fracking occurring on private lands, the workaround of using trains to carry petroleum instead of pipelines, the continuing sluggish economy, and the unwillingness of other countries to cut back on their own oil production. So the price of oil broke support and dropped precipitously, hurting the very people the administration wants to prop up, meaning of course our adversaries.
Clever: The Obama administration has produced a lot of PR concerning its environmentally-friendly policies, knowing that most of it was (no pun intended) smoke and mirrors. It could block Keystone knowing that the train industry would carry the fuel; it could block fracking on Federal land knowing that private land would pick up the slack; it could destroy the coal industry (the rural poor are not equal to the urban poor, but that is an issue for another time) knowing that the Appalachian population is on the government dole anyway.
The administration has been working behind the scenes to get the Saudis to pump as much oil as they can. In the Middle East struggle, the administration wants two results: Israel diminished, and the Sunnis stronger than the Shi’a. Lower oil prices keeps Israel from exporting its natural gas, and also makes it less likely for Iran to be able to fund Shi’ite-related terrorist groups—an also has the added benefit of pressuring Iran to build its nuclear capability sooner rather than later, which (the administration figures) it will use against Israel but not against us.
One result is to trash the ruble, but that is a minor disturbance, since Putin is not going to give up his power, and the Russian people are used to suffering. Ditto Venezuela—and one reason Obama re-established relations with Cuba is in order to provide the Castro regime another source of funding, since Venezuela will not be able to keep up their oil bargain.
Now, having said all this, I think the “clever” option is fascinating, but I opt for “stupid,” since it is more in line with everything else the administration has attempted to handle in the past six years.
The take away from this story is that ISIS started the current price war by selling stolen Iraqi oil for $25 a barrel.
I sure hope so.
Most analyst consensus is Saudi is operating at a loss, compared to their spending, not the cost of producing oil.
But they also started into this price drop with nearly $800 billion in cash reserves. I don't think Russia or the other OPEC nations are near that point, relative to their spending.
Saudi oil production is actual down from last year at this time.
Thanks for the great analysis.
The daily worldwide consumption of oil is about 90 million barrels.
Oil is not going away anytime soon.
Not hardly. ISIS actions raised prices if it had any effect. Their actions took a few hundred thousand barrels a day out of the global supply chain.
Then they failed. Saudi is producing less oil than last year. The price drop is not from Saudi putting more oil on the market. Only the US, and to a smaller amount Canada, have made significant oil production increases. Libya has restored some of their previous lost production in the past have year as well.
Agreed. And the trend is not going to be less oil used globally at the prices today.
When you have $15-20 billion/month in subsidizing commitments, internal and very proximal security problems and you remain a profligate consumer of imported goods, cash reserves dwindle quickly.
No oil was taken out of the global supply chain...it was simply sold at a steep discount into the global supply chain.
Thanks for posting these articles on oil, BTW.
800 divided 20 is 40 months
Since oil price is only half and not zero, let us call it at least five years.
OPEC will crack if these prices are sustained. But it won’t be Saudi Arabia driving the changes from being unsustainable.
And selling an insignificant amount of stolen TVs in the back alley doesn’t lower the price at the stores.
Oil is a commodity market. Someone selling local at a discount doesn’t effect the market price. The total supply was down not up with ISIS actions.
A discounted price will only drive a commodity down if their is sufficient supply to meet demand at that price. There isn’t.
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