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.
It can be useful to inform other readers of the thread of continued false information.
I suppose but it is sometimes like trying to stop a tidal wave.
Very true, but while the water rises in the boat, its best to keep bailing.
My interest is more in keeping FR a source of accurate info, supported by real sources of data and info.
I really have no illusions of having everyone agree with me.
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