Posted on 01/13/2015 8:21:17 PM PST by shepardspie33
The Merriam-Webster dictionary offers this definition for the word capitulate: "to stop fighting an enemy or opponent; to admit that an enemy or opponent has won."
I'm not sure who oil companies are fighting, whether it's oil traders, OPEC, Russia, or some invisible market force, but they're losing. The domestic standard, West Texas Intermediate crude oil, fell below $45 per barrel on Tuesday, while the global standard, Brent crude oil, is now well under $50.
Who is going to stop the bleeding? OPEC is not cutting production, the U.S. is expected to increase output in 2015, and Russia has little choice but to sell whatever crude oil it can just to make money. But someone will have to capitulate if these players aim to halt the slide in oil prices. Energy companies are nervous about a cutback in spending, but so far rigs are still finding work drilling for oil. Who is going to blink first? Depending on whom you ask, oil markets are oversupplied by 1 million to 2 million barrels per day. That creates a problem with oil prices because supply and demand are very inelastic, meaning they don't change very much even if prices change dramatically. Think about your own gasoline usage. If prices fall 50% how much more do you drive? Probably not very much.
(Excerpt) Read more at money.cnn.com ...
Yeah, they probably don’t mind screwing Russia, Iran and the USA.
..................
However, as oil prices fall there will be less money available to send to radical madrases around the planet.
It is a long shot, but consider that:
-Saudi Arabia doesn't have a lot of friends in the region. Their big buddy, the US, has left.
-They are a Sunni country, but with a large Shiite minority, and that minority is where the oil is, close to Iran.
- ISIS doesn't like them, and will try to destabilize the monarchy.
- Even within Saudi Arabia, the royal family is losing legitimacy.
There’s just not enough smoke around in Saudi Arabia to suggest the fire you’re talking about. The gulf states are just too economically dynamic right now to be in any real trouble.
But if oil prices stay down for a couple years. Maybe things will change. But first the Saudis have to burn through about 800 billion dollars in reserves.
After that, anything can happen.
Obama.
BS...there is no “US”...the oil industry is so diverse and spread over areas of production it cannot be controlled. Free enterprise is the reason oil is falling in price...low demand and high supplies. The Saudis and others can no longer control prices...and sure cant control demand!
If we want stability..we have to be the big supplier. Wont happen till we get a new pres.
Very interesting. Thanks to all posters.
very good post. Oil has been an oligarchy for a while. A few controlled production and by that controlled price. Eventually oligarchies break down in a large market. The big sticking point of shale oil was infrastructure, and after that got built because of artificially high prices, the oligarchy broke down.
Free markets don’t blink. Economics will determine price.
DK
IOW, the U.S.
As I understand, when the price drops below $60/bl, the US companies can't make money.
My granddaughter in heavily involved with the Bakken oilfield so I'm watching developments closely.
The geopolitical shift in alliances and toppling of certain dictators may well justify this phase of American Might being exercised via the old Military-Political-Economic trinity of Cold War vintage.
Ah, the smell of regime change is as sweet as Napalm in the morning!
Horizontal drilling and fracking have greatly altered the supply equation. Few suppliers will sell oil for long if it costs more to extract it than they get for selling it. Saudi Arabia, Russia, and Venezuela and others have low extraction costs, but only when you consider the direct costs. They also have extremely high costs associated with the fact they run their country off the revenue generated by oil sale. When you factor this in, their production costs are likely to be even higher than the costs associated with fracking and horizontal drilling. It remains to be seen whether or not the frackers will beat the socialists. I'll place my bets on the frackers.
What a typically stupid article.
The "U.S." doesn't determine oil output. Hundreds of individual companies determine their own production. Now, maybe Saudi Arabia might blink, but American decisions will be based on the profitability of continued production.
Nothing else.
Hi, Vinny. Some of the bigger outfits in the Bakken will survive oil prices lower than that, but some of the smaller ones, not as easily. WTI crude is going back up now, for the time being ($48.49 a barrel after a quick look at the time of this comment).
. . . and just where is that money invested - and what will happen if it is withdrawn???
Iran can sell it and let someone else refine it.....like maybe the chicoms.
Oil does seem to have settled now though, maybe the Frackers are brokering the Saudi/Isis vs Iran/Chicom problem?
Statements such as this illustrate why what 'experts' say should be viewed cynically if at all.
Except SA is producing at virtually full capacity.
Not the first time, and not the last time this has happened.
SA is the swing producer. When OPEC says let's cut production, OPEC means SA. SA has measured the market and judged they would take too large a hit production wise to bring the market back.
SA does this occasionally to help the rest of OPEC "get their head on straight." Countries like Venezuela and Iran have to bleed for awhile until they are willing to exhibit market discipline. SA could take a 2-3 MBD cut in production, or OPEC as a whole could take a 10% cut in production.
Of course, this time is fundamentally different because of fracking. OPEC will continue to lose market share at $100/bbl oil because of increased non-OPEC production.
It's no win for SA.
Margin X volume=profit
This assumes Margins is constant. Usually, margins are compressed when prices are falling.
Profit = sales - expense
sales is a function of volume
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.