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Page added on November 9, 2015
Saudi Vice Oil Minister Sees Price Surge After Cutbacks
The scale of the global oil and gas industry’s spending cuts are making another surge in energy prices possible by diminishing future supply, Saudi Vice Minister of Petroleum & Mineral Resources Prince Abdulaziz bin Salman said.
Investments have been cut by $200 billion this year and will drop another 3 percent to 8 percent next year, marking the first time since the mid 1980s that industry cut the spending for two consecutive years, Prince Abdulaziz said in a copy of his speech for delivery to energy ministers in Doha Monday. Nearly 5 million barrels a day of projects have been deferred or canceled, he said in the remarks.
Just like high oil prices can’t last, a prolonged period of low prices is “also unsustainable, as it will induce large investment cuts and reduce the resilience of the oil industry, undermining the future security of supply and setting the scene for another sharp price rise,” the prince said in the remarks. “As a responsible and reliable producer with long-term horizon, the kingdom is committed to continue to invest in its oil and gas sector, despite the drop in the oil price.”
Oil prices have declined 42 percent in the past year as Saudi Arabia led the Organization of Petroleum Exporting Countries in maintaining production in the face of a global glut rather than make way for booming U.S. output. Supply from outside the 12-member group will start to decline next year and the drop will accelerate after that, according to his speech.
Price Instability
The impact of the current price instability is not just confined to the oil sector as “the spillovers are being strongly felt in other parts of the energy complex, such as renewables and natural gas,” Prince Abdulaziz said. Oil prices will probably rebound next year, United Arab Emirates Energy Minister Suhail Al Mazrouei told a conference in Abu Dhabi on Monday.
Oil demand is expected to be 94 million barrels a day this year, rising 1.5 percent from last year, with about 2 million barrels a day of spare capacity, mainly held in Saudi Arabia, the prince said in the prepared remarks. Growth in Asia’s demand may slow “by efforts to efficiency enhancement and oil substitution,” he said.
“But the petroleum industry should not lose sight of the fact that scale matters,” with billions of people moving up into the middle class, the prince said. The size of the world’s middle class will expand from 1.8 billion to 3.2 billion in 2020, and to 4.9 billion in 2030, with the bulk of this expansion occurring in Asia, he said.
“Rather than being a commodity in decline, as some would like to portray, supply and demand patterns indicate that the long-term fundamentals of the oil complex remain robust.”
28 Comments on "Saudi Vice Oil Minister Sees Price Surge After Cutbacks"
makati1 on Mon, 9th Nov 2015 8:30 pm
Bloomberg pimping for the oil industry.
dave thompson on Mon, 9th Nov 2015 9:47 pm
Amazing that the Saudis or some other big producer have not lowered production rates on the global market for a few weeks or months to jack up the price.
Westexasfanclub on Tue, 10th Nov 2015 3:08 am
I just red the article about global rig count over at peakoilbarrel.com. Global rig count stays down around 40% compared to its high in november last year. And not only that. The new low extends for half a year already. If the asumption is true and production follows that pattern with a twelve months lag, the. I can only see something catastrophic happen within the very next months: Production falls worldwide and the price of oil goes through the ceiling – but even new projects, made possible because of those prices, will lag until the end of next year before they can make a difference on the supply side. Until then the world economy will have bled to death. The Saudies, in the light of this development, will then have much more power over the energy markets and a significant bigger share of the world’s oil production. What a brilliant and sinister move.
shortonoil on Tue, 10th Nov 2015 3:37 am
The price has been down over 50% for a year, and there has been almost no compensatory increase in demand. Why would anyone think that demand will increase if the price goes up? Price can’t go up without producing an ocean of unwanted oil. Any increase in price will only result in greater inventory builds, which means lower prices, and at least a third of the world’s producers can not continue operations at the present price level.
Oil has reached its production, and price limits. From here, there is only down as production costs continue up.
Westexasfanclub on Tue, 10th Nov 2015 4:26 am
Right, Short. But the downslope apparently won’t start soft but with a rollercoaster. Indeed, it MUST be a rollercoaster, because the EIA stated today, that all will go smoothly until 2020. And they are always wrong by principle.
makati1 on Tue, 10th Nov 2015 5:14 am
Westtexas, maybe it will just continue to slide down, with occasional bumps? We have seen the end of any ‘increase’ in prices that amount to anything. After all, any significant increase will just collapse the world money system/economy.
There is no increasing demand overall. Never will be. A few countries may be increasing their oil consumption, but they are balanced out by most of the Western countries decreasing theirs. If you have $5 to spend on gasoline, it only means you buy less when the price goes up, not that you find more dollars to buy the same or more.
Most Western consumers have shrinking incomes, not growing, and maxed out debt, with nothing left on their credit cards or their home equity. Many are unemployed and on the government dole. They won’t be buying at higher prices.
Davy on Tue, 10th Nov 2015 7:22 am
I see prices “attempting” a surge. The financial system is decoupled from reality. The financial system is repressed and unable to determine value per traditional fundamentals. Liquidity is part artificial and manipulated per central banks goal seeking. I know some like to focus on the physical of oil and the thermodynamic relationship of oil and economic activity. This is profoundly important and why Short’s Hills Group analysis greatly expanded my peak oil dynamics understanding. Peak oil dynamics term and definition from Rock another great contributor on the PO board is likewise very enlightening.
Oil is heads and the economy is tails. Oil exists as a resource because of the economy. Oil is a function of human wants and efforts. Our civilization is now a global oil civilization. Humans wanted this and it self-organized over decades into what we have today because billions of human wants organized into this. We humans did not have to become an oil culture we wanted this.
This is a global society with oil along with complex networks of production, financial exchange, and distribution. We are delocalized locals relying on vital resources from this global system with oil as the foundational lubricant. With this said markets have an instinct to find value. They do this by finding a market price. Market forces of supply and demand along with network guidance, manipulation and corruption play a role.
Price discovery is now less rational and more irrational because the system is repressed and corrupted. It is repressed and corrupted as a policy from the very top of the systems leadership at all levels. In the past many of these action would be considered moral hazard and illegal. Today these actions are accepted and the basis of the new normal.
The financial system is decoupled from a rational price discovery more than ever in our history. In the meantime peak oil dynamics continue to compress the economic health of the oil economy and the greater global economy. We are seeing clear pressure on “real” growth. What “real” growth is can be debated all day long. I do not acknowledge official statistics. They must be considered and digested along with many other informal considerations and alternative analysis to cut through the official guidance, manipulation, and corruption.
Real growth appears to be stagnating from multiple viewpoints. This stagnation is a decline in the rate of growth clearly seen in official statistics but also possibly no growth per some informal analysis. Saying we are still growing misses the point. Our global economy and its foundational economic and thermodynamic lubricant oil are under compression. There is a minimum operating level for both and this level is in relationship. This relationship appears to be in decline. Oil and the global economy live in a vital relationship that all other activities rely on for activity
Thermodynamics of oil and economic activity are only part of the equation. Human nature and human systems are the other part of the equation. Human nature is only partially rational. We can bid prices up for irrational reasons. The thermodynamics of oil can be ignored because reality can be ignored until economic suicide enforces the laws of nature. Markets can irrationally discover price. Yet, in the meantime peak oil dynamics continues on because it is reality. Our oil dynamics and all those other forces that allow a complex global economy continue their finite physical existence within entropic depletion.
We can and likely will have price volatility. If prices shoot up it will not be without economic damage. The fundamentals of oil and the economy on the thermodynamic physics side are one of lower economic potential of oil. On the “real” global economy side we see clear indications of demand destruction. Discounting this and dismissing this is ludicrous. One need only look to China on the production side and the Fed’s inability to normalize to see clear indications of demand destruction IOW systematic deflation.
To say the financial system has to function within the physical reality of natural laws is only partially valid. Yes and no, yes the financial system’s activity is based on real economic activity but no the markets are part irrational and can dream up whatever price they like. Price discovery is a function of incomplete market discovery by millions of participants.
Price discovery is as basic as it gets for man and the economy. Price discovery can and likely will become very volatile as the thermodynamic physical reality of oil’s economic value compresses. Oil price can and could shoot through the roof and even remain high but it could also be in a downward spiral of demand and supply destruction never to recover.
This market irrationality will change the underlying physics of oil further. Oils declining economic value to the economy is physical and abstract. If you have half the equation to oil in an irrational functionality you then have oil’s economic value distorted further. Poor decisions are being made in oil’s economic application to the economy.
This is where we are now currently. I will not comment on the validity of the current price only that the relationship of oil to the economy as a function of the financial system is increasingly irrational and dysfunctional so expect irrational and dysfunctional price discovery. Oil physical economic value is depleting. Our financial system is dysfunctional. We are suffering economic entropic decay it is natural for dysfunctional and the irrational to distort reality.
Boat on Tue, 10th Nov 2015 8:29 am
short,
The price has been down over 50% for a year, and there has been almost no compensatory increase in demand.
Gasoline sales are up 3%. Huge markets don’t grow fast. Take nat gas for example. It is growing about 6% per year even though prices have been low for years. A lot of infrastructure has to change.
Same with gasoline and diesel. Were not all going to hop in our cars and drive around just because we can save $1.50 per gallon.
shortonoil on Tue, 10th Nov 2015 9:17 am
“Gasoline sales are up 3%. Huge markets don’t grow fast.”
At that rate by the time oil is $22/ barrel gasoline sales will be up 6%. At $22 the entire world’s petroleum producing sector will be in receivership. Sounds like a 100% guaranteed solution for oil producers?
GregT on Tue, 10th Nov 2015 9:27 am
“Were not all going to hop in our cars and drive around just because we can save $1.50 per gallon.”
Regular gasoline at the pump here today is $1.28/ litre. In January of 2005, when the price of gasoline started climbing, leading to the global financial crisis that we still have not recovered from, gasoline at the pumps was $0.79/ litre. Joe six-pack is paying $0.49/litre more today than 10 years ago, for an increase of 162%.
http://www.vancouvergasprices.com/Retail_Price_Chart.aspx
Boat on Tue, 10th Nov 2015 9:34 am
GregT.
Not sure why gas is so high there. In Houston we can get it at $1.85 per gallon. That is equal to your numbers in 2005.
GregT on Tue, 10th Nov 2015 9:58 am
@Boat,
You’re paying the hidden costs of militarism to keep your oil flowing. What you see at the pumps, does not reveal the entire price.
Boat on Tue, 10th Nov 2015 10:21 am
GregT,
Your impossible to even have a simple conversation about the price of gasoline. Always changing the subject or going off in an entirely different direction.
Are we really paying off the hidden cost of militarism or simply adding debt. That is a different conversation. Or are we paying off militarism and it’s entitlements that are going to debt. These kinds of conversations are silly.
The US Fed hasn’t raised taxes on fuels since 1993 so our tax has not adjusted for inflation. Maybe that is why you pay higher.
marmico on Tue, 10th Nov 2015 10:28 am
Not sure why gas is so high there
Taxes. ~45 cents per liter is equivalent to ~$1.70 per U.S. gallon.
GreggyT suffers from a decade old dementia.
GregT on Tue, 10th Nov 2015 10:34 am
“The US Fed hasn’t raised taxes on fuels since 1993 so our tax has not adjusted for inflation.”
The US also exports it’s inflation Boat. Everyone that holds USDs around the world is being taxed to support your lifestyle. That is going to change soon.
The US is a major importer of oil, yet the US has some of the cheapest fuel prices in the world. If not for militarism and blood, why else do you think that would be?
National defence? Defence against what? Terrorism? Don’t you find it the least bit coincidental that the terrorists all seem to come from oil producing regions? Maybe they’re fed up with being bombed back into the stone age to keep your gas at $1.85 per gallon.
Davy on Tue, 10th Nov 2015 10:49 am
Greg, the rest of the world is exporting deflation now to the U.S. hurting our export industry. I don’t think that is a proper statement claiming the rest of the world is subsidizing the U.S. Lifestyle. Who’s lifestyle the wealthy or the poor should also be considered. The third world has taken our jobs so we are subsidizing the third world with jobs.
The rest of the world can use a different currency but they don’t. They don’t because there are no better alternative at the level needed. Why is there no alternative? The reasons are many, varied, and numerous. This should not be a either or blame game. The global system operates on advantage and disadvantage in a comparative sense. Winner and losers are dispersed across the global system at many different levels.
BobInget on Tue, 10th Nov 2015 12:06 pm
Oil Fail:
Saudi Arabia to tap global bond markets for 1st time due to oil fall; increasing debt to ~50% of GDP within 5 years http://www.ft.com/cms/s/0/d1be572a-86fd-11e5-90de-f44762bf9896.html??
apneaman on Tue, 10th Nov 2015 12:25 pm
Isn’t gas tax supposed pay for highway infrastructure? Maybe the combination of the infrastructure falling down due to neglect and getting hammered as a consequence of AGW has caused the increase in fuel use – sitting in traffic, congestion and having to take the long way home because another overpass was washed out and another bridge fell down.
Human Cost Rises as Old Bridges, Dams and Roads Go Unrepaired
http://www.nytimes.com/2015/11/06/us/politics/human-cost-rises-as-old-bridges-dams-and-roads-go-unrepaired.html
Maybe it’s all those extra trips back and forth to get the cars fixed due to the neo 3rd world infrastructure beating the shit out of them?
Forecast for area roads: increasing potholes, chance of car repairs
http://www.dallasnews.com/news/metro/20150303-pothole-crop-just-beginning-to-come-in.ece
Bad roads cost car owners billions: Report
http://www.cnbc.com/2015/07/23/bad-roads-cost-car-owners-billions-report.html
apneaman on Tue, 10th Nov 2015 1:00 pm
Saudi Arabia’s New King Likes Beheading People Even More Than His Predecessor
https://news.vice.com/article/saudi-arabias-new-king-likes-beheading-people-even-more-than-his-predecessor?utm_content=buffer8d1ef&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer
GregT on Tue, 10th Nov 2015 1:15 pm
Davy,
The USD was adopted as the world’s reserve currency because it was considered to be stable. As time has worn on, the US has devalued it’s currency, which is akin to a hidden tax on every single dollar held.
The third world did not ‘take’ US jobs. It was US multinationals that off-shored those jobs for increased profit margins and cheaper consumer goods for the masses. Good for GDP. Not so good for the average US citizen. This has been a household topic of conversation for well over two decades now. Most of the MA and Pop retail has long since been put out of business. It should have been obvious where this was all headed.
GregT on Tue, 10th Nov 2015 1:24 pm
Also Davy,
The oligarchs are now trying to ram their TPP through congress. Think things have gotten bad already? If they get their new deal, things are going to get exponentially worse.
GregT on Tue, 10th Nov 2015 1:34 pm
Thanks to WikiLeaks, we see just how bad TPP trade deal is for regular people
http://www.theguardian.com/commentisfree/2013/nov/13/trans-pacific-paternership-intellectual-property
Boat on Tue, 10th Nov 2015 1:48 pm
GregT,
National defence? Defence against what? Terrorism? Don’t you find it the least bit coincidental that the terrorists all seem to come from oil producing regions? Maybe they’re fed up with being bombed back into the stone age to keep your gas at $1.85 per gallon.
How many bombs have we dropped on Canada, Mexico, Venezuela, Saudi. Lybia and Iraq come to mind but we import a small percentage from them. Once again you lie and blow stats way out of proportion. You spin like RT, MSNBC and Fox news. They can never seem to find the truth. Are you training your kids to think like you? I hope not. Try objective thinking once.
Boat on Tue, 10th Nov 2015 1:50 pm
apeman,
Isn’t gas tax supposed pay for highway infrastructure?
That’s an old wives tale.
GregT on Tue, 10th Nov 2015 2:01 pm
“Isn’t gas tax supposed pay for highway infrastructure?”
Absolutely it was. Of course some people are too busy watching sports on TV to pay attention to reality.
“The Gas Tax Doesn’t Work Because Politicians Broke It’
Pegged at 18.4 cents a gallon since 1993, it no longer raises enough money to pay for federal infrastructure spending. And that’s always been the main job of the gas tax: paying for roads and bridges.
Beginning in 1957, gas tax revenues were funneled directly into the federal Highway Trust Fund. Over the years, lawmakers raised the tax numerous times, ensuring that the trust fund would have enough money to pay for necessary projects.
But the last increase came in 1993, and since then the levy has remained stagnant.
http://www.forbes.com/sites/taxanalysts/2013/10/24/the-gas-tax-doesnt-work-because-politicians-broke-it/
Davy on Tue, 10th Nov 2015 2:06 pm
Greg, everyone has devalued for the most part. We are seeing a race to the bottom. There is no hidden tax in this process. You take risk when you hold a currency that is not a hidden tax. These countries are paying for their inability to have an alternative. Don’t expect the US to take care of the rest of the world. The rest of the world has their own interest at heart just as the US is self-interested.
The third world most certainly took US jobs and took them happily. It does not matter who gave those jobs to the third world. US multinationals are only part of the equation. The global world is full of other multinationals not based in the US. It is not fair and balanced to finger point the US solely. A significant amount of jobs went to China through Chinese companies and facilitated by Chinese government policy as one example.
GregT on Tue, 10th Nov 2015 2:10 pm
” Are you training your kids to think like you? I hope not.”
No Boat, we taught them to think for themselves. Unlike you, they’re both highly intelligent and very aware of reality.
apneaman on Tue, 10th Nov 2015 2:31 pm
boat, don’t you ever get tired of it? You a masochist?
There is no need to bomb Mexico anymore since you are still pumping oil out of what was once their land before you killed them for it. You living on it.
“Did you know that until 1848 California, New Mexico and other portions of the Southwest were internationally recognized provinces of free Mexico, until the U.S. decided it wanted those provinces, declared war on Mexico, and stole them? Read on for the chronology of these events, and then ask yourself : “Who are the real illegal in California?”
http://academic.udayton.edu/race/02rights/guadalu3.htm
See boat you are the illegal. Isn’t it time you left, but first paid back the Mexicans for all that oil y’all stole? Wouldn’t that be the decent warmNfuzzy thing to do? C’mon boat, show us that American fairness and justice. Don’t worry boat, I’ll let you crash on my couch for a bit while you make new living arrangements.