Posted on 12/19/2014 10:50:36 AM PST by thackney
There are numerous stories, on the internet, regarding the decline of oil prices. Everybody has an opinion or forecast, but unfortunately, they range from the eternal optimist to depths of the ultra deep (well ok the deepwater) drill rig.
The majority of these posts talk about the glut in recent months as supply overwhelms the demand. Mostly thanks to slumping economies around the world, especially the largest users of petroleum.
There is also significant chatter around the internet about Saudi Arabia (KSA) and their reluctance to curb production, which would help the price of oil go back up, to the chagrin of other OPEC members. (with the exception of the other Gulf Coast Countries) The supposed “strategy” by KSA is drive oil prices low, so US shale companies stop drilling and eventually end up folding, leading to KSA dominance again, in the global oil business.. The issue I see with this strategy is while there are certainly a number of companies financially leveraged that won’t make it through this downturn. There are a number of oil companies with strong balance sheets (i.e. Oxy, Chevron & ExxonMobil) that will be able to come in and pick off the firms on the cheap, relatively speaking. Subsequently, production will pick up, and a portion of the decline will be offset. I see this as “strengthening the herd”. As is life in the great outdoors, when animals get hungry and go for the kill, it’s usually the old and the sick that are killed and become dinner for the pursuer. You don’t have to be the fastest out there; you just can’t be the slowest!
While the KSA strategy above is what is being covered globally, I think there is a more discrete strategy at play. The Saudis are deceitful and cunning, but not stupid. I feel the Obama administration could actually contribute positively to an oil rebound. No it’s not more government involvement in our capital market, directly. KSA is big man on the block in the MENA region and wants to maintain their status. US companies becoming the largest oil producer has the potential to alter that, but what would definitely change their status? It’s Iran acquiring nuclear capabilities. With oil prices low and continued sanctions, Iran will have difficulty meeting their social-economic responsibilities. Russia’s support of Iran has been well documented. Russia will find it very difficult to continue supporting Iran in their nuclear quest. The falling Ruble, sanctions by Western countries (for their Ukraine invasion), combined with falling oil prices will put significant pressure on Putin.
How long will the low price of oil play out? The better question may be, how long can the people of Iran & Russia maintain civility before they create problems significant enough to change the direction of their leadership?
A number of “experts” proclaim the low oil prices are good for the US and other economies. I believe there’s an argument to the contrary. That’s a debate for another day.
What is the best price for oil?
High enough to encourage exploration and production. Low enough to economically encourage/allow consumption.
Expert is a 6 letter word meaning someone that anyone will listen to.
I prefer the consultant over expert. Then folks pay for the opinion.
I think they’re afraid to cut production because they know other members will cheat. If oil prices did not go back up as a result of SA production cuts, OPEC would lose its power to manipulate world prices. They can’t let that happen.
I believe the 0Tard Admin secretly convinced his buddies, the Saudis, to tank the oil markets to put maximum pain and pressure on Putin. The Saudis liked this, because it also harms Iran, and they don’t care for the Russians either. An added benefit is it harms domestic oil production/exploration here, which the lefty enviro-wackos just hate. The Saudis obviously don’t like our domestic oil production either. It’s a win-win for the Saudis and 0bama.
This is causing dominos to fall all over the place. The Ruble is crashing, and the Russian economy is under great pressure. Putin’s talk yesterday sounded like he was laying the groundwork for potential hostilities. He could gut off the gas to Europe. The Iranians might just decide to go after the Saudi/Kuwait/Iraq oil fields in the Middle East, if they come under too much pressure from the low oil prices and sanctions. China might try to get in on this as well.
There’s alot of things at work here, and we could be seeing a setup for a world war.
God Help us!
Saudi stated that rather bluntly going into last meeting. They made it clear they were not interested in taking a cut in revenue to allow others to pay for their out of control spending.
I don’t, because the Saudi’s have not done anything. They are actually producing less oil than last year at this time.
later
I don’t see how Iran’s development of the ability to nuke Saudi Arabia and put them out of production [the author’s apparent point] is significantly affected by current oil prices.
The supply and price of oil, like everything else, is set by the “min-max equation”. Generally that equation says sell more at a low price (profit) or sell less at a high price (profit).
Iran is going to find it even more difficult to fund that development of nuclear powerweapons.
The supply and price of oil, like everything else, is set by the “min-max equation”. Generally that equation says sell more at a low price (profit) or sell less at a high price (profit).
Iran cannot afford to sell less oil at any time. There government spending is not being matched by maximum production at $120/barrel.
If Russia wants to drive oil prices back up, they need to start a war in the Middle East.
Now that should scare us. Russia could choke supply in the ME simply by fomenting all out war and cutting off shipping lines.
And the question I have: Is their reluctance to cut production related to the Obamanation’s NSA blackmailing them?
I read their reluctance to cut production due to reluctance to carry OPEC’s water while the other cheat and get full revenue.
Obummer would like to see the US oil industry take it on the chin. He wants US production to go down, not up.
I think we are liable to see some serious regional wars erupt from the oil situation. TFB. For 40 years I’ve watched a nation abundant in energy resources lick the boots of Muslim tyrants for the privilege of buying over priced oil, while America hating leftists in congress and the WH have stifled energy production and everything else good about this country.
But funding the development of nuclear weapons, or power, is a military/political decision only slightly affected by economics.
If in their interests, another country can just give it to them for nothing even .
SA simply hasn’t any economic reason to reduce it’s production as there will be no resulting rise in price since demand is so low and supply so plentiful. Any geopolitical benefits are vague and doubtful.
Iran, like some other countries, hasn’t any leeway in it’s oil production, it always needs the maximum and spends every penny- on something besides improving it’s production facilities LOL!.
I disagree, when revenues are half of what are needed. It is a time of desperation for nations like Iran and Venezuela, because their spending has been really out of control.
If in their interests, another country can just give it to them for nothing even .
I believe Russia had that attitude, before they got in such financial problems themselves. Which other nuclear power do you think would fund that today?
In man’s nature there is a drive to oppress others, be they truly alien or his own women. Perhaps the true measure of his power is how openly he can indulge in this.
From the sci-fi book “In Conquest Born”
Nuclear weapons development requires a lot of funding but their possession doesn’t. There were nuclear weapons in Cuba at one time.
I don’t think any nation would give them the technology at this time but ‘things change’. If N Korea could do it secretly and also very profitably they probably would. The ‘secretly’ part is the hard part...
Looking for reasons SA doesn’t cut production is starting to appear facetious (silly, futile, beside-the-point) to me.
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