Low oil prices in 2015 could spark an economic revival in the United States while impoverishing Russians, Venezuelans, and other petrostate citizens.
The New Year starts with oil prices at their lowest since 2009. This week they dropped around $1, to $53.11 for West Texas crude and $56.75 for Brent traded in London.
Oil prices have plunged partly because of the shale boom in the United States, the biggest oil importer in the world. Fracking has opened massive new supplies of oil in places like North Dakota, where drillers can’t find enough roughnecks to hire. Diminished demand from Europe and China, where economic growth has slowed, is also helping to suppress prices.
Saudi Arabia, the world’s biggest oil exporter, has meanwhile maintained a steady flow of oil, even as the price has fallen by around 50 percent since June. This has prompted observers to speculate that it is purposefully driving prices down to inconvenience strategic adversaries such as Iran.
The desert kingdom would normally be expected to curtail production and choke supply to drive up the cost of oil, as other OPEC nations unsuccessfully petitioned it to do recently. But the superrich Saudis appear willing to lose money because low oil prices are harming their economic rivals and punishing their geopolitical enemies, Fadel Gheit, managing director and oil analyst at Oppenheimer & Co., a New York investment bank, told VICE News.
“The fall of the oil prices is not just something ordinary and economical, this is not due to only global recession,” Iranian President Hassan Rouhani recently asserted. “The main reason for it is (a) political conspiracy by certain countries against the interest of the region and the Islamic world, and it is only in the interest of some other countries.”
Gheit believes that Saudi Arabia wants American drillers — whose cost of extracting oil and gas from shale is many times that of Saudi producers — and other competitors to go bust as the price of oil plummets. The superrich Saudis can afford to play that game.
“Saudi Arabia has enormous foreign reserves which can withstand the low oil prices for years,” he noted, but he didn’t think North Dakotans had much to worry about in the New Year. “I’m very optimistic that American production will be able to cope with low oil prices for a lot longer than many people think.”
The American oil industry is already getting help from its friends. President Barack Obama recently eased the US ban on exporting oil, a move that could further drench the market in oil and lower prices but also give domestic drillers access to international customers in 2015. Republicans set to control Congress in the New Year are championing a complete repeal of the ban.
“We need to rethink outdated laws that were passed during an era of energy scarcity,” said Republican Texas Congressman Joe Barton as he introduced a House bill to lift all export restrictions in December. “Recent analysis confirms lifting the export ban would spur economic growth and create hundreds of thousands of additional jobs, while at the same time lowering prices at the pump. It would also diversify the world oil supply — strengthening US energy security and giving us more leverage in foreign policy matters.”
The low cost of oil has already tipped OPEC founding member Venezuela into a recession that will almost certainly linger into 2015, prompting President Nicolas Maduro to speak darkly of a US conspiracy to dismantle the oil cartel.
“It is a two-year plan, which is affecting the prices of commodities and many developing economies,” Maduro said this week. “The US wants to impose a unipolar world controlled from Washington. That is madness.”
Low energy costs are expected to put more money in the pockets of car-crazy Americans, helping the American economy in general. The current average for gasoline prices in the US is $2.25, according to the AAA, meaning road trips, work commutes, and other drives are a lot cheaper than a few years ago. That’s money saved that can be spent elsewhere.
“It’s a tax break for the consumer,” said Gheit.
But the low price of oil is wreaking havoc with the economies of Iran and Russia. Sunni Muslim Saudi Arabia and Shiite Muslim Iran have long been enemies. Now Iran and Russia are supporting Syrian President Bashar al-Assad, while the Saudis back the rebels in the Syrian civil war.
Iranian officials are now cutting budgets and raising taxes, potentially on previously sacrosanct tax-exempt religious organizations, to make up for funds lost from cheap oil.
Russia, meanwhile, is facing a potentially devastating recession. The ruble lost half its value against the US dollar in 2014. It’s not clear how Russian President Vladimir Putin and the state-owned companies he controls will cover the their foreign debts or maintain his iron grip on power in the Kremlin. Oil exports comprise as much as 30 percent of the country’s gross domestic product, according to the American Enterprise Institute. Its government passed a budget for 2015 that is based on an average price of $100 per barrel.
“Russia is in big, big trouble,” said Gheit. “There’s mismanagement, corruption. Even Putin is under pressure, tremendous pressure. If oil prices don’t reverse in the next two years, he is history. He is going to lose the support of the people. Russians are in no mood to go back to the bread lines that their parent and grandparents experienced years ago.”
rockman on Thu, 1st Jan 2015 8:17 pm
“Low oil prices in 2015…impoverishing Russians, Venezuelans, and other petrostate citizens.” Funny: I don’t recall anyone pointing out the “impoverishment” of the oil producers in 2006 when the price was 10% HIGHER THAN THE CURRENT PRICE. Especially when that $62/bbl price was a 100% increase in just the previous 3 years. So when prices DECREASE to $60/bbl producers are impoverished and when prices INCREASE to $60/bbl the oil producers are in hog heaven. And all this occurs in just a 10 year period.
Got it.
Go Speed Racer on Thu, 1st Jan 2015 8:40 pm
Hmmm the Russians are receiving hardship again. So they tell Putin they aren’t happy with him, and then he goes away? i don’t think it works like that.
GregT on Thu, 1st Jan 2015 9:42 pm
“There’s mismanagement, corruption. Even Putin is under pressure, tremendous pressure. If oil prices don’t reverse in the next two years, he is history.”
Meanwhile back in the real world:
“Putin is the world’s leading geopolitical leader. Obama is a world-class thug. It shows in their approval ratings.”
“Despite Russia’s economic woes, Putin’s remains extraordinarily high. A recent Levada Center poll has him at 85%.”
“The Times named UK Independence Party (UKIP) leader Nigel Farage its “Britain of the year.” For his “game-changing politics.” He called Putin the world leader he most admires. He’s not alone. None match his resolve to end conflicts peacefully. Polar opposite Obama’s obsession for war.”
Perhaps why his (Obama’s) overall approval rating hovers around 40%. Among active duty military personnel it’s 15%.
His disapproval rating is 55%. According to a Military Times poll. A resounding denunciation of his rage for war, killing and mass destruction. Among other reasons.
http://www.thepeoplesvoice.org/TPV3/Voices.php/2014/12/30/putin-s-approval-rating-v-obama-s
Nony on Thu, 1st Jan 2015 10:15 pm
I remember when OPEC said they were going to do us a favor and keep oil in a 20-30 band. And then when it went higher than that, they said they couldn’t help it. Bunch of BS. They loved it being 100. SA still has 2 MM bpd of ready capacity. and could have much more than that with development.
Bottom line is OPEC used the chance of increasing demand in the 2000s to get their house in order and raise prices. I would love to create way more cheating, get SA to pump all they can, etc. We need to advocate policies that lower oil prices. NO SANCTIONS. Open ANWR, GOM, VACAPES, KXL, etc. It’s not even about the immediate barrels but about the signal it sends of future production coming.
Nony on Thu, 1st Jan 2015 11:08 pm
I’m going to make a NYR to not post any more on this site. Please hold me to it.
Northwest Resident on Fri, 2nd Jan 2015 12:03 am
Nony — NYRs are made to be broken. You’ll be back. 🙂
Makati1 on Fri, 2nd Jan 2015 4:09 am
When I read: “Low oil prices in 2015 could spark an economic revival…” I knew this was another bullshit article from the propaganda pimps…not worth the time to read, except for laughs.
Makati1 on Fri, 2nd Jan 2015 4:10 am
Nony, changing your avatar will not matter, if that is your plan. You are too obvious.
JuanP on Fri, 2nd Jan 2015 8:04 am
This article is a waste of time, skip it if you are smart, you won’t get your time back.
According to last week’s polls by US polling companies and the University of Chicago (that also conduct polls for the CIA and US government), Putin has the highest approval rating of any political leader in the world. His domestic job approval rating is higher than 80% and more than twice Obama’s. A clear majority of Russians would vote again for him today, and intend to vote for him in the future. IMO, Putin is by far the best politician in power today and he is his own man, not a PUPPET. I would be willing to give an arm and a leg to have someone like him in power in the USA instead of the creeps we have pulling the strings here.
I expect Putin to remain in power until 2024. He will change the constitution, he will not stay past the constitutionally allowed time and will retire when his next term expires. He is on the record on this, and I believe Putin. He is the second most honest President I am aware of.
The most honest and also the poorest President in the world is Pepe Mujica, Uruguay’s President, whose only possesions are a beat up 1970s VW Beetle and his clothes, and donates more than 90% of his salary to charity. His farmer wife will donate her humble farm and all her few possesions to charity after they die, too. They have no children, but they will found an orphanage on the farm after he retires as President of Uruguay in a few weeks.
JuanP on Fri, 2nd Jan 2015 8:07 am
I meant to say he will NOT change the constitution! 😉
Makati1 on Fri, 2nd Jan 2015 8:14 am
JuanP, by 2024, I suspect that everything will have collapsed and leveled out and we will all be living in a totally different world. I will be 80 that year and expect to be here to experience it and all the excitement and adventure in between.
I hope you are safely in your southern home before then as I think the USSA and Canada are not going to be pleasant places when the social safety nets come down.
JuanP on Fri, 2nd Jan 2015 8:56 am
Mak, I don’t believe we’ve got another decade for the global system. I have little idea what the world will be like in 2016, forget 2024.
I am afraid I expect a renewed war in Ukraine and a further deterioration of the American-Russian relationship, and also mostly a bad year in 2015.
My main concern is the way the USA escalated its foreign operations in the last few years, particularly against Russia since before the Sochi Olympics in the media, and also what is going on in Ukraine since the Western backed unconstitutional criminal coup. Ukraine is being raped as we speak. It makes me mad. The last 15 years have been increasingly scary. I believe the global geopolitical situation is as scary as it can be and getting worse all the time.
I admire that you make the effort to visit your parents. I always did as you will in the future, I let those who wanted come to me. I will be going home for the first time in two decades in a few days.
Happy new year!
Speculawyer on Fri, 2nd Jan 2015 3:18 pm
Yeah . . . Obama’s ratings are not so high? Why? Because people are stupid and racist. The stock market is at record highs, gasoline is cheap, unemployment is below 5.8%, consumer sentiment is high, the deficit has been cut in half, we have fewer uninsured people, there is no active ground war that the USA is fighting, etc. . . . and yet they whine about the Kenyan socialist atheist Muslim that went to Reverend Wright’s church.
For all those people that think Putin is great, I’ll buy you a one-way ticket to Russia but you have to stay there.
At least the idiots in Russia that worship Putin have an excuse . . . their media is largely state-controlled and they don’t have much access to other media because they can’t access it and they can’t often can’t speak English.
GregT on Fri, 2nd Jan 2015 3:35 pm
Spec,
It may taste OK, but in reality it isn’t healthy for you. Stop drinking the Kool-aid.
Speculawyer on Fri, 2nd Jan 2015 5:08 pm
I think reality is healthy for people to deal with. It is best to remain anchored in the reality of the situation whether it is good or bad. Creating imaginary theories of how awful it is or how great it is that do not comport with reality can be dangerous.
GregT on Fri, 2nd Jan 2015 7:03 pm
Thank you Spec,
Exactly my point. You are not anchored in reality. You are creating an imaginary theory of how great things are. Nothing could be further from the truth.
If you believe that the Russians are idiots, then I wonder what that would make us Westerners. Brain dead? At least the Russian media is state controlled, our media is controlled by corporate interests, as are our governments, and honestly, who gives a crap whether or not other societies speak English? The West is on it’s way out. The East is rising in it’s place. Better to learn how to speak Mandarin or Cantonese.
Harquebus on Fri, 2nd Jan 2015 7:44 pm
I just read an article here at PO about layoffs in the oil industry and now I read “drillers can’t find enough roughnecks to hire.”
So, which one is it?
Harquebus on Fri, 2nd Jan 2015 7:49 pm
@Speculawyer
a) All U.S. government figures are fudged.
b) With the excessive amount of QE which, can never be paid back, I would be surprise if there wasn’t a few improvements.
a+b=short term gain for long term pain.
Northwest Resident on Fri, 2nd Jan 2015 8:56 pm
Harquebus — That’s always the question, isn’t it? At least, it is for those perceptive and bright enough to recognize that there are two conflicting “realities” being presented, one (or both) of which can’t possibly be true. It takes a lot of reading, thinking, research and question-asking to cut through the bullshit these days and get to the truth of important matters. Especially when the propaganda machine is pumping out the misinformation 24/7/365, with a single goal of deceiving us all, or as many as possible. In the end, it boils down to logic and common sense, both of which are out of reach of your regular J6P. You obviously are one of those who can tell the difference. Not many can.
Kenz300 on Sat, 3rd Jan 2015 9:13 am
Petrostates made huge windfalls for years…….
Maybe this will be a wake up call for both producers and consumers……
Use this time of low oil prices to diversify away from reliance on fossil fuels.