Privately, Saudis tell oil market: get used to lower prices

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rdean

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Omair said that prices should stop falling at around $76 to $77 a barrel, citing production costs in places such as the United States, where a shale oil boom has unexpectedly reversed dwindling output and pushed production to its highest level since the 1980s.

"Until about three days ago the absolute and total consensus in the market was the Saudis would cut," said McNally. That is no longer a foregone conclusion, he said. "The market suddenly realizes it is operating without a net."

Exclusive Privately Saudis tell oil market get used to lower prices Reuters

But will it translate to lower gas prices?
 
Only if the foreign markets lower their prices. If it comes to a decision to sell to customers here at home for $2.75 a gallon, or to Chinese or Europeans at $3.50 a gallon, who do you think that our refiners are going to sell to?
 
Will GOP blame Obama for downward spiral of oil prices?
 
Granny says, "Dat's right - Obama got the Saudis dancin' to his tune...

Are the US and Saudi Arabia conspiring to keep oil prices down?
November 20, 2014: WASHINGTON — As Slate writer Jordan Weissmann wrote Tuesday, there are a number of factors behind the continuing global slide in oil prices, including North American production, increased energy efficiency, Europe's economic stagnation, and China's slowing growth. But a big one is Saudi Arabia, which, to the dismay of fellow oil-producing nations, has resisted pressure to cut production in order to stabilize prices.
Ahead of an OPEC meeting in Vienna next week, there are some contradictory theories about why Saudi Arabia is content to keep oil cheap for the time being. One is that the Saudis want to nip the U.S. oil boom in the bud. American shale oil is more expensive to produce and needs high prices to remain competitive. As one analyst put it when the kingdom cut prices for U.S. customers earlier this month, "the Saudis have basically declared war on the U.S. oil producers." But there's a competing narrative, or "conspiracy theory" if you prefer, that the Saudis are waging war in cooperation with the United States, against their mutual enemies Russia and Iran. "Saudi Arabia, which intends to manage OPEC, serves the interests of the G20 group," a former Iranian oil minister told Reuters. Venezuelan President Nicolás Maduro, whose government is collateral damage in this war, also aired this view recently, saying, "What is the reason for the United States and some U.S. allies wanting to drive down the price of oil? To harm Russia."

The U.S.-Saudi oil alliance is basically taken as a given in the Iranian and Russian media, and the idea got a recent endorsement from New York Times columnist Thomas Friedman as well. Saudi Arabia may indeed want to punish Russia for its support of Bashar Assad's government, and will take any leverage it can get over regional archrival Iran. The U.S., meanwhile, wants to punish Russia for its actions in Ukraine and to pressure Iran into agreeing to a nuclear deal. To be clear, there's no proof of any deal, and Saudi Arabia denies its policies are motivated by geopolitical interests. Moreover, U.S.-Saudi relations aren't at their best at the moment, and the kingdom is extremely skeptical of America's latest opening to Iran. But even if there isn't explicit collusion going on, Saudi Arabia's move certainly benefits some key U.S. foreign policy interests, if not the bank accounts of North Dakota oil drillers.

For the sake of argument, let's assume that the conspiracy theory is real, and that there is an agreement in place between the U.S. and Saudi Arabia to keep oil prices down. Is it working? Low oil prices are having an impact on both the Russian and Iranian economies. In Russia's case, that impact is probably greater than that of the recently imposed Western sanctions. But as Dan Drezner points out in The Washington Post, if economic performance were a reliable guide to the future prospects of authoritarian governments, Zimbabwe's Robert Mugabe and North Korea's Kim family would have been deposed by angry mobs decades ago. For now, the dire state of the Russian economy doesn't appear to be having much of an effect on Vladimir Putin's popularity, and actions that anger the West only seem to make his position stronger at home.

In Iran, the situation is a little murkier. Some experts estimate the country needs $140-a-barrel oil to balance its budget. The price is currently about $80 per barrel. The Islamic Republic's economic distress is likely one reason why President Hassan Rouhani's government has been more cooperative on the nuclear issue. The government can't do much about oil prices, but better relations with the West could bring sanctions relief and investment. But ultimately, the success of the talks will hinge on the views of Iran's supreme leader, Ayatollah Ali Khamanei, who as the Times notes, "has been less focused on Iran's economic future than on its status as a regional and world player."

The oil war may be making life difficult for these countries, then, but there's no guarantee it will change the behavior of their regimes. On the other hand, there is one regime whose behavior is likely being affected by the world of cheap oil. Senate Democrats narrowly defeated the Keystone XL pipeline on Tuesday, in part because President Barack Obama was expected to veto it even if it did pass. He likely feels more comfortable about that stance than he would if oil were priced at more than $100 a barrel right now.

Are the US and Saudi Arabia conspiring to keep oil prices down - Opinion - Stripes

See also:

Russia Can Do Little to Shore Up Falling Oil Prices
November 20, 2014 — Russia can do little to shore up slumping global prices even if OPEC wants it to. Russian wells will freeze if they stop pumping oil, and the country has no capacity to store the output it would otherwise export.
Before next week's meeting of OPEC, Russia has already spoken to group member Venezuela about the need to “coordinate actions in defense” of oil prices and it plans to send a high-ranking delegation to press the message. But despite needing oil prices of $100 a barrel to balance its budget, Russia has changed little since 2008 when the Organization of the Petroleum Exporting Countries urged Moscow to join forces to cut supply to shore up prices.

'Nothing has changed'

Then and now, the world's biggest producer lacks the ability to increase or turn down its own production. “Nothing has changed,” said Valery Nesterov, an analyst with Sberbank CIB, adding that while China has built storage to beef up its stocks for its energy-intensive economy, Russia has constructed no new facilities. Nesterov also said Russia had a harsh climate and challenging geology which meant it cannot simply stop wells from pumping oil. “Russian wells will just freeze if you stop them.” But that does not mean that Moscow will not try to persuade others to help shore up a price, which has fallen 33 percent since June to $78 a barrel.

65ADD7A7-E82B-408C-97B7-B183CE03FF7C_w640_r1_s.jpg

A general view shows the Achinsk oil refining factory, owned by the Rosneft company.

Igor Sechin, chief executive officer of Russia's biggest oil producer Rosneft and a long-standing ally of President Vladimir Putin, and Energy Minister Alexander Novak will both fly to Austria days before OPEC is due to meet in Vienna. They are due to attend a conference with Venezualan officials, have not shed light on the agenda or the other participants. Novak's spokeswoman said on Thursday the minister would not attend the OPEC meeting itself. Oil market watchers are divided on the outcome of the meeting in Vienna, which will be the most uncertain for years. Analysts are split over whether there will be a coordinated cut, with some saying output could be reduced by up to 1.5 million barrels per day (bpd).

Some experts argue that Russia could even need oil prices as high as $115 to balance the budget, since social and military spending have soared, while Western sanctions over Ukraine have cut off Moscow from funds it borrows in Western financial markets. Given that its production cannot be stopped, the only option left would be for Russia to cut its exports, which stand at about 4 million bpd. Asked if Russia could hold back oil it would normally export, a trader at a major western oil company said: “And where would you put it?” Some oil could be stored in the Transneft pipeline system, one of the world's longest, he said. But it was never supposed to be used for prolonged storage, because it is reserve capacity to be used only in the event of technical problems. Transneft did not respond to a request for comment.

Lack of storage capacity
 
Omair said that prices should stop falling at around $76 to $77 a barrel, citing production costs in places such as the United States, where a shale oil boom has unexpectedly reversed dwindling output and pushed production to its highest level since the 1980s.

"Until about three days ago the absolute and total consensus in the market was the Saudis would cut," said McNally. That is no longer a foregone conclusion, he said. "The market suddenly realizes it is operating without a net."

Exclusive Privately Saudis tell oil market get used to lower prices Reuters

But will it translate to lower gas prices?

high gas prices is the reason fracking is now economically sound. With Russia using oil as a geopolitical tool and with the US producing more oil I'm surprised Obama and the Saudi's haven't already teamed up to lower oil prices for once.
 
Only so much oil in the world. Wont stay low indefinately. Plus the middle eastern nations seeing the writing on the wall ahead of them are going to get increasingly surly as reserves run dry and along with it their relevance in the world. Eventually, one or more arab states are going to get nuclear weapons and make a power grab.
 
high gas prices is the reason fracking is now economically sound.

Fracking has been around through far lower prices than are happening now, for oil or gas. People don't seem to realize that it is a 60+ year old oil field completion technique. $70/bbl? Please…more than 100,000 frac jobs had already been done by about 1955..what were oil prices then? Certainly they weren't the "low" prices people are babbling about right now.
 
Only so much oil in the world.

True. About 6X or 7X times more than we have used in the entire history of the human species in the past 160 years. So no fear about running out, certainly.

Delta4Embassy said:
Wont stay low indefinitely.

It isn't low now. Low would bring back $0.25/gal and no one is claiming that is about to happen. Prices just aren't as high as they have been recently, nothing more. The industry revolves around boom and busts, we'll just have to wait and see the amplitude and frequency of this one.

Delta4Embassy said:
Plus the middle eastern nations seeing the writing on the wall ahead of them are going to get increasingly surly as reserves run dry and along with it their relevance in the world.

Oh, they aren't in much danger of "running dry" when it comes to their oil resources.

Delta4Embassy said:
Eventually, one or more arab states are going to get nuclear weapons and make a power grab.

Big deal. Let Iran take over Iraq, or Kuwait conquer Bahrain. Let American's produce American oil, buy the oil sands from Canada, and some day, when Venezuela is run by folks not trying to rape and pillage their own country, no one in the Western Hemisphere will ever even need Middle Eastern oil.
 
Only so much oil in the world.
True. About 6X or 7X times more than we have used in the entire history of the human species in the past 160 years. So no fear about running out, certainly.

and the vast majority of it unrecoverable and/or beyond the purchasing power of the margin consumer

Big deal. Let Iran take over Iraq, or Kuwait conquer Bahrain. Let American's produce American oil, buy the oil sands from Canada, and some day, when Venezuela is run by folks not trying to rape and pillage their own country, no one in the Western Hemisphere will ever even need Middle Eastern oil.

LOL... fail.

I see you still don't understand the dynamic at play. How is it that you flock to this forum every day of your existence, spew a lot of technical upstream jargon to hear yourself blabber, yet still don't really know what you're talking about?
 
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and the vast majority of it unrecoverable and/or beyond the purchasing power of the margin consumer

That is a statement predicated on price and technology. And additionally, a description of a demand curve from said consumer. You have never provided any reference to any of this information, you simply SAY it.

Please produce a cost of supply curve that establishes your point. The current mark as to what people can afford is about $147/bbl or so, in 2008 dollars.

Feel free to use ASPO, USA or International, TOD, or any other doomer, peaker, prepper organization or reference you'd like.

Or are you satisfied with making unsubstantiated statements forever, as you have constantly done in the past?

JiggsCasey said:
I see you still don't understand the dynamic at play.

Come up with a cost of supply, and a demand curve, and we can talk about the dynamic in play. Otherwise, you are just doing the normal Jiggsy parroting routine.

JiggsCasey said:
How is it that you flock to this forum every day of your existence, spew a lot of technical upstream jargon to hear yourself blabber, yet still don't really know what you're talking about?

Do you really want to know? Here, you can guess at why my work schedule allows me to surf the net. For 3 weeks out of the month, my commute is measured in minutes, I am authorized to be armed during working hours, and am. I fly a desk during working hours with 3 different computers sitting in front of me as I type this, my office is about 500 ft^2 in size. For 1 week out of the month my commute is measured in hours, I am not allowed to carry a weapon of any kind and would be arrested on the spot for doing so. I fly a desk during working hours with a single computer sitting in front of me, and my office is about 100 ft^2 in size, and I share the office, and sit back to back with someone who works a similar schedule as mine. During that one week, you would normally see far less of me surfing the net. Posting only a little, as I do nowadays, you wouldn't be able to tell.

Of course I understand upstream jargon. I just hit the beginning of my 4th decade in the industry, researching the industry, or analyzing the industry. You don't even have a decade of parroting to your credit yet, let alone actual work or understanding of the issues involved.
 
Please produce a cost of supply curve that establishes your point. The current mark as to what people can afford is about $147/bbl or so, in 2008 dollars.

Feel free to use ASPO, USA or International, TOD, or any other doomer, peaker, prepper organization or reference you'd like.

LOL!!!! ... I don't need really to. ... Literally ALL the proof I need is the nosedive the price took immediately after that spike shock, as well as the global economic fallout afterward and the $16 trillion in desperate global bailouts ever since.

So, quite OBVIOUSLY, the world CAN'T afford "$147/bbl or so." It can't even afford $100-110 your heroes desperately need, as the number keeps bumping up against that ceiling and dropping down amid great worldwide economic dislocation. ... Do better.

We're all well aware that your tight oil industry is in great, great peril with demand-crushed prices this low. Prediction: You'll tell us "no problem" again, and how all how the very best shale sweet spots can be produced "profitably" at prices as low as $40, while ignoring the median price requirement for the industry as a whole. You know, amid a world salad of "parrot, church, doomer" nonsense. ... The literature is all over the place on shale profitability, but undoubtedly you'll put the best spin on it you can try.

Oil price is a reflection of what the margin consumer can afford. I'm sorry that puts you neoliberal classicals on such a tilt.
 
Please produce a cost of supply curve that establishes your point. The current mark as to what people can afford is about $147/bbl or so, in 2008 dollars.

Feel free to use ASPO, USA or International, TOD, or any other doomer, peaker, prepper organization or reference you'd like.

LOL!!!! ... I don't need really to. ... Literally ALL the proof I need is the nosedive the price took immediately after that spike shock, as well as the global economic fallout afterward and the $16 trillion in desperate global bailouts ever since.

Depends on which point you are trying to parrot someone else to prove I imagine. When you claimed peak oil a few years back, I don't recall crashing prices being one of the side effects. Nor US oil production growing faster than at any time in its entire history. Nor the US stopping completely the import of Nigerian oil, now that we have so much. Discovering two of the largest producing oil fields in the western hemisphere being just yet another fact that your religion would just as soon hope everyone doesn't notice.

JiggsCasey said:
We're all well aware that your tight oil industry is in great, great peril with demand-crushed prices this low.

High demand does not crush price any more than lack of supply does. Get your vectors right parrot. Those of us driving our EVs certainly care very little about the price of gasoline, high or low. We enjoy using domestically produced and distributed fuels, and the American jobs and economic activity that accompany it. Although I admit I notice it when doing a road trip, and forced to put those icky, obsolete liquid fuels in my traveling car.

But as I said before, you could prove your point by just producing a cost of supply curve, from any of your religions favorite sources. But you didn't, because you can't, and worse yet…if you did….it would be too easy to demonstrate why chicken littles are wrong…again…and crashing crude prices are proof in the pudding.

Better luck next peak oil.
 

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