Posted on 03/09/2020 8:40:09 AM PDT by Hojczyk
The big news over the weekend was not the coronavirus, contrary to what you might think from watching the news. The most consequential story of the weekend is the oil price war that has broken out between Saudi Arabia and Russia. Saudi Arabia has decided to increase its production and slash its price to punish Russia for not going along with OPEC quotas designed to prop up the price of oil, which has fallen by more than half over the last few months including today’s price collapse.
(Can’t help reminding that all the certified “smart people” like John Kerry and Al Gore were telling us 15 years ago that we had reached “peak oil,” and more specifically that Saudi Arabia had likely reached its production peak and would be unable to increase its production over 10 million barrels a day. Heh.)
On the surface this Saudi move will impose significant pain on Russia, which depends on high oil prices to prop up its economy, and will also increase pressure on Iran for the same reason. Likewise American consumers, and oil-consuming sectors like the airlines, can likely look forward to some lower prices
And while the story of the Saudi-Russia feud may be entirely true, keep in mind that a protracted period of low oil prices is going to devastate America’s oil production from fracking in Texas and elsewhere. A lot of the smaller and mid-sized independent producers who have been behind a lot of the increase in domestic oil production were already under a lot of pressure from falling oil prices.
If the price stays down around the $30 level it is near today, a lot of the highly leveraged firms will default on loans or head to bankruptcy. Production will start to fall in a few months.
(Excerpt) Read more at powerlineblog.com ...
I think there is a chance that Russia and Saudi Arabia are in this together, and that their real target is burgeoning US production via fracking. Unfortunately for us, the production costs for fracking are higher than they are for the easily accessible reserves of Saudi and Russia. It would be to the benefit of BOTH of them if they could reduce the amount of oil production from the US.
Brilliant move on the part of the Saudis, lower price ‘because’ of Russia and kill fracking oil in USA. A two win plan and the blame is on the Russians and not Saudi for targeting USA fracking.
EXACTLY.
What happens to Iran?
This will collapse their economy, and this is on top of the virus there.
A short-term federal tax on petroleum imports ($10-$15 / bbl) would shut the mouths of all the Demwits, would raise money quickly, keep domestic production strong, and indirectly screw the daylights out of OPEC and Russia. As an offset, the federal retail excise on fuel should be suspended.
State governments will take advantage of lower gasoline prices to raise at the pump taxes. They do it every time.
Déjà vu 1986.
Yes. The silver lining is Iran with coronavirus and low oil prices. Their whole economy, already on the ropes, could collapse, which, hopefully, could lead to the overthrow of the ayatollahs.
Read an article earlier that it’s $1.78/gallon in Raleigh, NC.
Personally I don't think Opec manipulate oil price exactly like DeBeers manipulates the price of diamonds and there is a shortage of niether.
We need to support our domestic oil producers, it’s a matter of national security.
Energy Independence should be tops on our list.
When we went through this is 2014/15, our domestic industry radicalized cost control. In the long term, we need pricing above $50 per barrel to continue exploration and development. But, in the short to mid-term, most of our wells have a "cash cost" in the mid-20's. That means, our producers are not hemorrhaging cash at these levels. The ones that are under, will be able to find support from the banks.
Keep an eye on the price level. If it drops much below $30, then the Saudis are coming after the US too. If it stays around $30-33, it's a coordinated effort to take down the Russia-Iran alliance.
Most states tax on a per-gallon basis. So a change in price has no impact on the tax collected (except when prices are down, consumption usually goes up, and an increase in revenues is seen). There are several states that do base tax on price, and it varies within those states between fixed per-gallon tax plus a sales tax based on price, among other things.
“So you’re going to force every American consumer to pay $20/bbl more in tariffs than the rest of the world. That difference goes to the producers whether you call it a transfer or not...And in the process you kill all the energy jobs related to exports.”
My Globalism instincts went out the door when it was found that 80% (at least) of our meds rely on China. I’m happy paying a bit more for gasoline, if it keeps our production from collapsing.
If these were domestic companies predatory pricing falls under the anti trust laws. Say a large company takes a loss and lowers their prices far below where the competition can stay afloat in order to drive them out of business only to raise their prices back up once their competitors have gone under. That would be predatory pricing. The larger company would be attempting to create a monopoly.
That in a nutshell is what SA is doing so that is the reason we need to hit them with import tariffs. Had we have done this decades ago we would not have spent all that time dependent on SA.
Oil and gas paid $16 billion to Texans in tax revenues (local and state). $40 billion in loans are due this year - $400 billion in loans are due the next 4 years. If oil stays low - they can’t pay those loans back and that impacts the banks. That impacts everyone. Gas prices won’t plunge on extremely low oil - but everything else will. It’s all interconnected.
First we won’t be exporting much if the price is well below our production costs. Most importantly we will lose our energy independence and that’s what the President can’t allow to happen. SA could sell oil for $10 a barrel if they wanted to. Oil is practically on the ground over there. We cannot afford to let SA drive our domestic companies out with predatory pricing. Without Tariffs we will have low cost oil just long enough for American producers to hang it up then it will be $130 a barrel. It’s really that simple.
Kerry and Gore are idiots then. It is well known that Saudi Arabia has many more reserves under the ground untapped. They just chose not to develop those reserves for many reasons including security.
This could be the death of the oil sands in Alberta.
Talk about poking the bear...we may soon find our what kind of new black technology Russia has in operation. I can’t imagine there won’t be some type of sudden and permanent disappearance/death of an important Saudi official.
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