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Monday, January 12, 2015

How OPEC Weaponized the Price of Oil Against U.S. Drillers

Shale oil production in North Dakota, U.S.

If there ever was doubt about the strategy of the Organization of Petroleum Exporting Countries, its wealthiest members are putting that issue to rest.

Representatives of Saudi Arabia, the United Arab Emirates and Kuwait stressed a dozen times in the past six weeks that the group won’t curb output to halt the biggest drop in crude since 2008. Qatar’s estimate for the global oversupply is among the biggest of any producing country. These countries actually want -- and are achieving -- further price declines as part of an attempt to hasten cutbacks by U.S. shale drillers, according to Barclays Plc and Commerzbank AG.

Crude fell 48 percent last year and has declined 35 percent since OPEC affirmed its output target on Nov. 27. That decision, while squeezing revenues for OPEC members in 2015, aims at preserving their market share for years to come.

Oil Prices

“The faster you bring the price down, the quicker you will have a response from U.S. production -- that is the expectation and the hope,” said Jamie Webster, an analyst at consultants IHS Inc. in Washington. “I cannot recall a time when several members were actively pushing the price down in both word and deed.”
Holding Out

U.S. crude production totaled 9.13 million barrels a day last week, up about 1 million barrels from a year ago and 49,000 from the OPEC meeting in November. Horizontal drilling and hydraulic fracturing in underground shale rock have boosted output by 66 percent over the past five years. Exports, still limited by law, reached a record 502,000 barrels a day in November, according to the Energy Information Administration.

The four Middle East OPEC members are counting on combined reserve assets estimated by the International Monetary Fund at $826.4 billion to withstand the plunge in prices. Petroleum represents 63 percent of their exports. At least 10 calls and several e-mails to the oil ministries of all four countries on Jan. 7 and yesterday weren’t answered.

The price decline will cost all 12 OPEC members a total of $257 billion in lost revenue this year, according to the EIA. Venezuela has a 93 percent chance of defaulting on its debt over the next five years, according to CMA, a data provider owned by McGraw Hill Financial Inc. President Nicolas Maduro said Dec. 13 that “there is no possibility of default” and on Jan. 7 that the country has “the capacity to obtain the financing” it needs.



Anonymous said...

do we have to buy from other nations? why not just use our own for now and squeeze them out?

Anonymous said...

Well would you look here. It would appear what I said in the last thread about Saudi Arabia lowering the price of oil to control American energy independence would appear to be true.

Anonymous said...

The major oil companies, most of whom are incorporated in the United States have been in collusion/price fixing since we were paying a dollar a gallon. That's called a tight pool, where nobody in the pool breaks away and lowers sale price in a relationship to real costs. One elected company by the group sets the price (unrelated to costs, but great for shareholders/oil profits) and the rest stay in line. Everybody makes money. Even though it's a federal criminal offense oil companies are not concerned because already paid politicians get their piece of the action via speaking engagements, political donations etc. Most politicians are lawyers, need I say anything more? ALL oil companies love a fluctuating market, they screw the consumer as the cost of crude rises (they bought that yet to be delivered oil in the summer as oil futures when the price was at it's cheapest/ahead of time/winter) and as the price of crude rises, it gives them the widest range of profit. Then when crude starts to drop, they're slow to pass the savings on to their customers (we're sorry/we forgot). With everybody now paying attention to price, collusion stops working as well as it did. The logic of, if we only bought American produced oil, do you think the savings oil companies will be making will be passed on to the consumer? Or will it go into the pockets of oil company stockholders/investors/executives as bonuses? And do you think politicians will help us when we get that royal no competition oil screwing? Nope, politicians will do no more than they have done in the past or currently do. What's happening now seems to be working for us, so leave it alone, let the greedy oil company bastards drown in crude oil, eat it, drink it, feed it to their children. They've been protected (bought and paid for politicians) long enough. I hope the crude market takes a giant dump and crashes. Then and only then will you pay for the real price of the product at the pump or for heat, because collusion will evaporate, every dog for himself. The oil futures investor/traders will be out of business to. I wish them ALL ill, the oil companies will survive either way. Back in the 1980's when oil company names like Arco, Sunoco and others disappeared, the oil companies went no where, they were still there only now solidified as one entity so price fixing would be easier in their future, the last few years stands as a testament to greedy collusion.

Anonymous said...

Forgive the bad comment editing made at 11:37 but those who followed the thread get my drift.

I was told how "vastly uneducated" I was by one of our local collegiate liberals.

And then here we have the article citing exactly what I said. That Saudi Arabia, in an effort to stifle American Energy Independence, was crashing the price of oil.

To my "liberal" friend who insisted I was clueless. Consider yourself enlightened.

~Your resident "vastly uneducated" Muslim.