Posted on 01/13/2015 10:39:27 AM PST by thackney
I've been in the oil patch for close to 30 years. During that time, I have seen oil price go down to about $10 per barrel, and I have seen the price rise to over $100 per barrel. I have seen the price swing for no reason at all. I have heard different bogeymen being blamed for changes in the oil price. Supply and demand are certainly part of the oil price equation, but speculation has been a major price driver for at least the last couple of years, beyond the S&D factors.
Right now, the Saudis are being blamed for, or accused of, intentionally dropping the price of oil to its present position.
Did no one listen to what the Saudi spokesman said? He said that Saudi Arabia is going to let the market set the price, and they will not unilaterally lower their production to stop the apparent free-fall of oil prices. In fact, he went further to say that Saudi Arabia won't cut production as part of a multilateral effort to stabilize oil prices.
I believe they are merely facing a grim reality. In the past, in order to moderate oil price swings, Saudi Arabia - as the world's largest producer - would drop oil production with promises from their OPEC partners to do likewise. The partners, time and again, were caught selling their product through clandestine channels, or even blatantly raising production publicly to increase their income before prices dropped further. The phrase "get while the gettin's good" comes to mind.
I believe that Saudi Arabia is just weary of being the only country/producer to attempt to moderate the swings, and that they are doing exactly what they said: They are letting the market set the price. After all, the Saudi Arabian oil production infrastructure is in place, and they can still make a profit even at half the price that oil is trading for today. The Saudi Arabian national economy may need higher prices, but the oil patch is still in the black, while other producers with higher production costs are going to feel the pinch long before the Saudis do.
One other item of note: US oil production is up about 1 million barrels per day, and the apparent world wide surplus is reported to be 2 million barrels per day. Why is no one suggesting that the US cut production to 2010 levels? Because the US is still a net oil importer is certainly one of the factors; however, if there is a world-wide oil glut, the increased US production must certainly take part of the blame for it.
AH they can’t be trusted LOL!
Wonder what we are giving to the Saudis in return?
Because they are Muslims....next question.
I tend to agree with this writing.
I think the Saudi’s are doing exactly what they said they are doing.
In return for what? Refuse to coordinate with the rest of OPEC to act as a Cartel and force prices higher by a coordinated cut-back?
I wonder if Saudi Arabia is letting oil prices fall as a way to weaken Iran, which is its biggest enemy.
Prince Alwaleed said yesterday that he agreed with ARAMCO not reducing production:
“Having said that, the decision to not reduce production was prudent, smart and shrewd. Because had Saudi Arabia cut its production by 1 or 2 million barrels, that 1 or 2 million would have been produced by others. Which means Saudi Arabia would have had two negatives, less oil produced, and lower prices. So, at least you got slammed and slapped on the face from one angle, which is the reduction of the price of oil, but not the reduction of production.”
Nice collateral damage. But they aren’t cutting production and losing market share to someone else. Their breakeven cost is <$20/bbl so they have a ton of headroom.
Saudis.
"... if there is a world-wide oil glut, the increased US production must certainly take part of the blame for it. "
Blame? Blame you say? I think CREDIT is the word the author was after. Or maybe not. One man's glut is another man's salvation.
"... if there is a world-wide oil glut, the increased US production must certainly take part of the blame for it. "
Blame? Blame you say? I think CREDIT is the word the author was after. Or maybe not. One man's glut is another man's salvation.
One has to remember that the Saudi’s cost of production is not just the cost of getting it out of the ground, but also the cost of keeping the local yahoos from trashing the infrastructure. That is probably the bigger expense.
I have doubts that all of Saudi's production is really that low. They have started enhanced oil recovery on Ghawar years ago. They spent $17 Billion on Manifa for 900,000 BPD of heavy, sour (cheap) oil.
Their problem, and most of the other producers, is their spending. They need oil back up to $106 to match what they are spending. They are quickly spending billions at these prices.
Where do you get <$20/bbl?
True. Grammer, punctuation and spelling are not this engineer’s strength. I make that same mistake too often.
Keep in mind, this guy sells to the oil companies. His business will be hurting. It is perspective. And this bust looks like it may be extensive and painful.
If consumption outpaces production, who’s oil is not being purchased?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.