Saudi Arabia: We're Not Crashing Oil Prices To Hurt Iran
Source: CNN
Saudi Arabia insists the crash in oil prices is being fueled by oversupply, not a secret plot to hurt its archenemy Iran.
"People should go back to Adam Smith and basic economics. It's about supply and demand," Adel al-Jubeir, the Saudi foreign minister, told CNN's Wolf Blitzer on The Situation Room Tuesday when asked about allegations that the kingdom is trying to hurt Iran with cheap oil.
Surging U.S. oil production has flooded the world with oil, and prices have plunged nearly 75% since mid-2014. Crude oil tumbled to a fresh 12-year low of $27.92 on Tuesday.
Instead of electing to support oil prices by cutting output, Saudi Arabia continues to pump oil at an all-out pace. The Saudi strategy is designed to protect its turf, so that it won't lose more market share to high-cost producers in the U.S. and elsewhere.
"We let the market determine where the equilibrium should be. What we're seeing now is the market price," al-Jubeir said.
But beneath the Saudis' sudden embrace of free-market capitalism, some see a geopolitical motive: a desire to hurt Iran. The two kingpins of OPEC engaged in a scary staring contest earlier this month over Saudi Arabia's execution of a prominent Shiite cleric and the subsequent torching of the Saudi embassy in Iran.
Read more: http://money.cnn.com/2016/01/19/investing/saudi-arabia-oil-prices-iran/
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elias49
(4,259 posts)
Rochester
(838 posts)Now would be a good time to beef up the Strategic Petroleum Reserve, and/or raise some revenue and protect our own producers with a tarriff.
Motown_Johnny
(22,308 posts)The Second Stone
(2,900 posts)at bankruptcy auction prices if they have any production capacity.
I just love how Wall Street is crying over this. Will it ruin the Brothers Koch? One can only hope.
Backwoodsrider
(764 posts)Its not like Saudi Arabia is an ally... if we had given them billions over the years so they will be on our side when we have to deal with OPEC and those crazy Iranians I can see where the US might be disappointed but.... <sarcasm off>
The Second Stone
(2,900 posts)they've always had their own money. We do sell them top military technology though.
Backwoodsrider
(764 posts)According to our research engine:
The U.S. Government gave a total of $1,472,410 to Saudi Arabia in 2012:
http://us-foreign-aid.insidegov.com/q/150/1590/How-much-money-does-the-U-S-give-to-Saudi-Arabia|
The Second Stone
(2,900 posts)meanwhile, unemployment benefits and food stamps are being cut.
Anyway, I stand corrected to the extent that 1.4 million is billions.
bemildred
(90,061 posts)
RussBLib
(9,006 posts)we're in upside-down world
debsy
(530 posts)Just saying, maybe there is another angle...
Wernothelpless
(410 posts)This is as much about US oil fields as it is Iran ... they're protecting themselves ...
Gregorian
(23,867 posts)Am I the only one who thought that fracking was actually our war? It worked, with the exception of polluting our water supplies.
Javaman
(62,517 posts)Purveyor
(29,876 posts)of at least $70 oil. Something is going to 'break'...
happyslug
(14,779 posts)The House of Saud kept increasing their oil output after 2002 in an effort to reduce the price of oil. The House of Saud, through OPEC kept setting production goals that should have reduced the price of oil, but Putin kept his production up thus undoing all of the reduction the House of Saud did. Right now, the two largest oil exporters are Russia and Saudi Arabia, combined, they export more oil then the next 15 exporters combined.
Russian Oil production first peaked in 1987, the subsequent drop in Oil Production and result cash shortage was one of the reasons the Soviet Union Collapsed. This decline continued under Yeltsin, but reversed under Putin. That increase in production should have kept the price of oil low, but it did not. North Sea oil production peaked in 1999 and have gone into a steep decline (natural gas is still being produced but England is now a net oil IMPORTER, not the exporter it had been in the 1980s and 1990s). Mexican production also went into decline (While Canadian and off shore Louisiana and Texas oil production went up).
By 2005 it was clear, Saudi Arabia had most its ability to set world price, Why is still unclear, but tied in with the fact that exporters of oil export about 5% more oil then is imported. This oil is "Lost" NOT in transportation but in the fact that where the US has a Military base, oil to that base is NOT counted as a import into whatever country (outside the US) that base is in and is also not counted as a US Import. This "Lost" oil increased while the US went to war in Iraq and Afghanistan.
Since 2008, Mexican Oil has fallen in production, but Iraq and now Iran are exporting oil. Russia has NOT increased oil production but has also NOT decreased oil production (by reports it is believe Russia has hit its second peak oil production and production is expected to decline in the coming decades but Russia will be exporting oil for decades, just less then what Russia is exporting today).
AS to US Fracking, it has off set the drop in oil Production from Alaska North Slope, and was, with the increase off shore oil off the Texas and Louisiana Coasts, more then offset North Slope oil production, but the Fracking oil was expected to peak in 2017 and to into rapid decline after that date.
US Oil production is a huge factor in the recent drop in the price of oil. The pressure from US Oil production was NOT expected to be a factor after 2017, but it has been a factor since about 2005. Please note, both the Dakota Bakkan field and the Texas field have been known for decades and it has been known both need about $80 a barrel price. Thus both are NOT new discoveries, but the price of oil finally hit the point where it was profitable to drill those fields. The economics of those fields only made since at $80 a barrel, but how the funding for such wells were financed, once drill it was better to pump at a lost then not to pump at all (if you can not maximize profit, minimize your loss).
The big cost in fracking is drilling the well, once drill the cost to produce the oil is cheap. The problem is how to account for drilling the well? The proper way is to spread the costs of the well over every barrel pumped, but that requires $80 a barrel oil price. On the other hand, if you write off the cost of drilling as a lost, pumping the oil can be "Profitable" at $30 or even $30 a barrel. Given most fracking wells last only five years, you had a problem from 2008 onward. Wells had been drilled (and drilled as late as 2014) but as the price of oil dropped, the price you could sell the oil for was less then the cost of drilling and pumping, but not the cost of pumping only.
Furthermore most driller had signed contracts saying they would give landowners so much rent per month, and these contracts had to be paid even if the well was never drilled. Thus even as the price of oil dropped below the cost of drilling and pumping, if you added these "rent" costs, it was still better to drill at a loss. then not drill at an even greater loss till about 2013 to 2014.
In 2014 you saw a massive drop in drilling, most contracts that required drilling had been drilled by then and the price of oil kept dropping. Thus oil was pumped and is still being pumped but no new wells are being drilled. Thus come about 2017 oil production in the US is expected to drop, and drop drastically.
The above drop in US oil production, Russian Oil Production and other oil producers should push up the price of oil after 2017 (Some exports say 2016).
AS to the House of Saud, they tried to contained the price after 2002 but failed, til the recession of 2008 lead to a massive drop in oil consumption and combined with Saudi Arabia finally getting its heavy oil into production permitted the present glut of oil
Right now, Saudi Arabia is undergoing an internal fight over who shall rule Saudi Arabia at the death of the present King. It is expected this king will be the last of his generation to be king, the grandsons of King Saud I wants to take over and those cousins are fighting with each other over who will rule and how. This explains the support for IS in Syria and the invasion of Yemen. Thus, like Russia, the max funds right now is what everyone is Saudi Arabia wants and that means they can NOT cut production to control price, as in the days where the next King of Saudi Arabia was going to be a brother of the previous king (the norm in Saudi Arabia since 1952). The House of Saud is NOT united enough today to spread the cost of a cut of production among its members, each member is fighting to increase they power for the fight that is sure to come at the death of the present king. This infighting may NOT be violent, but we are seeing less and less toleration of any unrest and that is a sign that the House of Saud fears one of their own members may use such unrest to gain more power.
Till the next ruling set of House of Saud is decided (or replaced by someone else), I expect unrest and no real effort to stabilize the price of oil from the House of Saud.
