Saudi Arabia And OPEC Are Going To Keep Pumping Until Shale Investment Is Crushed

[Disir]

Summary
OPEC announced increased production.

Oil prices fell below $40 on the news.

Oil companies are facing huge charges for write downs of uneconomic oil assets in 2016.

Shale bankruptcies are coming soon unless prices go up significantly.

Credit downgrades are coming in 2016 for many oil companies unless prices go up significantly.


Overview:
On Sept. 18th I published an article "4 Reasons Why Saudi Arabia Will Keep The Spigots Open Until 2018" outlining why I thought oil prices were going to stay down for longer than most analysts think. The main theme was extended price cuts on oil would limit future investment in shale.

Well the OPEC meeting on Dec. 4th turned out to be full-pumping ahead rather than the optimistic outlook of many who thought for sure this OPEC meeting would result in production cuts. Upon the announcement of status quo pumping the oil price fell below $40 with the Crude Oil Electronic (CLF6) at $35.36 as of Friday December 11.

This latest blow to oil and the companies related to oil is just a continuation of what started November 2014 when the spigots were opened up. In November of 2015 OPEC production went up some more to a record amount of 31.7M barrels a day. In my opinion the oil price crush has a long way to run.

One of the arguments being bandied about by those who think oil prices will soon go up is the monetary toll it is taking on the oil sheikdoms in the Middle East. As a result the sheikdoms will have no choice but to cut production thereby raising the price of oil. In October both Bloomberg and CNN published articles claiming Saudi Arabia would be out of money in 5 years. But they are missing the point which is the Saudis only need one or two years more to achieve their goal - drive down oil shale investment.

As of March 31, 2015 here is what the sheikdoms have left in their sovereign wealth funds. They know they can last a lot longer than shale E&P companies can. They could live with $300B per year deficits for the next 2 years and still have almost $2 trillion left over. So their goal of crushing oil investment is easily achievable.

Saudi Arabia And OPEC Are Going To Keep Pumping Until Shale Investment Is Crushed

This is an interesting perspective worth noting. I did have to join this site to finish the article. And now I m following more stocks than I ever intended.

 

[Kosh]

You can thank ISIS the group that the far left supports without question or hesitation..

 

[TheOldSchool]

You can thank ISIS the group that the far left supports without question or hesitation..

^ proof the far right has zero grasp on reality

 

[tinydancer]

I can't figure out for the life of me why we in the west treat Saudi Arabia as our ally? It blows my mind. They have a worse human rights record than Assad and yet we're trying to take him out because SA/Qatar/Turkey want him gone and give Syria to the Muslim Brotherhood.

Look how well that worked out for Egypt!

 

[American_Jihad]

Saudi Arabia’s Sauve Qui Peut
Saudi spokesmen made three stunning announcements last week.
March 1, 2016
Hugh Fitzgerald

Originally posted on Jihad Watch.

Saudi spokesmen made three significant – even stunning –announcements last week. The first one came from the Saudi Arabian Oil Minister Ali al-Naimi, speaking to oil company executives at a meeting in Houston. He announced that Saudi Arabia was going to break completely with its past policy, would no longer be OPEC’s swing producer, and would refuse to participate in coordinated production cuts by both OPEC and non-OPEC producers, as it had so dutifully in the past in order to keep the price of oil at an agreed-upon level. From now on, Al-Naimi made clear, the Saudis would conduct their oil policy strictly with their own bank balance in mind: “Inefficient, uneconomic producers will have to get out. This is tough to say and that’s a fact. We can coexist with $20. We don’t want to, but if we have to, we will.” For even at that price, as the lowest-cost producer, Saudi Arabia could make money. So could Saudi Arabia’s neighbors and allies, Kuwait and the Emirates. But not only would the non-OPEC producers of oil, including those who invested so much in American shale and Canadian sands, require a price of at least $60 per barrel to be profitable, but so too would many OPEC producers, including Angola, Nigeria, Venezuela. Saudi Arabia was telling the world that the OPEC model of shared cuts in supply, with the Saudis bearing the lion’s share, a model they have adhered to for nearly 45 years, was dead. For the Saudis, there would no longer be any cuts in their own production to hold up the price for other OPEC members. The Saudi oil policy was now to be only for Saudi Arabia first, last, and always.

The second stunning announcement was that Saudi Arabia has just declared Lebanon off-limits to its own citizens. For decades Beirut was one of the main playgrounds for the Saudis and other Gulf Arabs; this travel ban will be devastating to the Lebanese economy. The official reason given was “concern for the safety” of Saudi nationals. But the danger level, while considerable, is not noticeably different from what it had been a year ago, or three, or five. Why impose the ban now?

The third Saudi announcement, that they were ending the $3 billion in military aid that they had been giving to Lebanon annually, had as its proximate cause the refusal of the Lebanese government to condemn the storming of the Saudi Embassy in Teheran and the consulate in Mashhad (attacks prompted by the Saudi execution of a prominent Shi’a cleric) by Iranians, a refusal which a Saudi official described as a “confiscation of the will” of the Lebanese state by the Iran-backed Shia Hizballah movement.

...

Saudi Arabia’s Sauve Qui Peut