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Page added on February 13, 2016
What’s up with Saudi Arabia and its oil?
With oil prices so low, much of the oil market has its eye on one producer in particular: Saudi Arabia.
It is the dominant member of OPEC. And for all the reasons oil prices fell in the first place, perhaps the biggest is OPEC’s call in late 2014 to keep pumping full bore. And flood the market with oil.
What was the motivation for the Saudis? And with oil now so low for so long, is their strategy working?
One word that crops up a lot with Saudi Arabia is … opaque. The leaders of the kingdom tend not to share their thinking. But the consensus in oil markets is that the Saudis led OPEC’s decision to flood the oil market in 2014, and send the price crashing.
Why? Mideast energy consultant Sara Vakhshouri said a price war sinks high-cost producers, like fracking companies. They drill in shale rock in America and want to go global.
“The low prices really kept the shale revolution a U.S. phenomenom, rather than expanding it to countries like China,” he said.
And, Vakhshouri said the move to cut prices keeps the world’s car drivers addicted to petroleum, rather than trying alternatives.
“The low oil prices could slightly push global demand high,” he said. “It of course makes it harder for renewables to progress as fast as they were doing.”
So think of the Saudis as the Wal-Mart, the Southwest Air, of crude oil. Low costs, deep pockets. But even in the monarchy, money’s not forever. Not at prices a third of what they were a couple years back.
Marc Lynch directs the Project on the Middle East Political Science at George Washington University.
“Saudi has huge reserves financially,” he said. “And they can get away for several years with running huge budget deficits. It’s not they are in immediate crisis. But looking toward longer term, it does become unsustainable even for Saudi.”
If crude prices stay low, the International Monetary Fund figures Riyadh could burn up its savings in five years. Here’s the issue: Saudi Arabia spends a lot right now — on subsidies at home, on Sunni mosques and schools in the region and more.
“They made a whole bunch of commitments at a time when oil was very expensive,” Lynch said. “And now they suddenly find themselves forced to continue to pay out at a time when the price of oil has really plummeted.
So now comes austerity. The government has just doubled the price of gas at home. And it cut subsidies for electricity, in a hot desert country where people are known to blast the A/C at home, even when they’re out.
Politically, it’s a risky play for leaders, who happen to be new. Last year brought a new king and deputy crown prince. Here’s Middle East consultant Jean-Francois Seznec.
“The second generation, the young guys if you like, are taking over,” said Middle East consultant Jean-Francois Seznec.. “The young prince who is so criticized for being a hothead and so on, he’s really in charge of modernizing the economy.”
And in charge of defense spending. The Saudis are bankrolling a war against militants next door in Yemen — it’s not going so well. And they support rebels in Syria — they’re not doing well.
Seznec said that what ties these together is an attempt to counter a rising Iran in the region. It’s a longtime rival of the Saudis.
“To this day,” he said, “I think there is a fear in the Saudi leadership that the Iranians are basically taking over Iraq, have taken over Syria, etc. etc.”
Iran just reached a nuclear sanctions agreement with the U.S. — a longtime ally of Saudi Arabia.
Today, the U.S. pumps more of its own oil than ever. So, is American support for the Saudis waning?
“It may not be a fact.,” Seznec said. “I’m not saying that the U.S. is moving out. But I’m saying the perception by the Saudis is that the U.S. has lost interest.
In the end, much of the kingdom’s interest comes back to oil.
The rival Saudis and the Iranians are members of OPEC, and if they can’t get along, it’s less likely OPEC will agree to intervene bring oil prices back up.
And the global price rout goes on.
7 Comments on "What’s up with Saudi Arabia and its oil?"
rockman on Sat, 13th Feb 2016 1:21 pm
Again such foolish statements. Many operators, including those in the US Have lower PRODUCTION COSTS then the KSA. There are even US shale players that PRODUCE OIL at a lower cost then the KSA. Of course DEVELOPMENT COSTS, IOW the price needed to justify drilling a new well, is a very different metric. For instance I’m sure the cost for the KSA to drill a Deep Water well is many, many times greater then the cost to drill an Eagle Ford well. BTW I suspect the KSA has cancelled a number of exploratory wells due to low oil prices just as many US companies have .
So yes: a great pull back from US shale drilling. But for how long? It’s good to remember that the shale boom began when oil prices increased from TODAY’S PRICE LEVEL. So what has the KSA acheived; losing $hundreds of $billion in revenue. That’s it: shutting down shale players (while hurting their own exploration economics) has gained them nothing of material valued. They are generating less revenue while more quickly depleting the single asset their economy is solely dependent upon.
So many folks who should be much smarter really aren’t’
Xerxes on Sat, 13th Feb 2016 4:44 pm
Saudi Arabia is not flooding the market. Look at exports: http://mazamascience.com/OilExport/ (you have to select the country from the drop down list), and it says that exports declined by 0.8% in 2014 from 2013. In fact, since 1991 their exports have been pretty flat, increasing from 7585 Kbd in 1991 to 8320 Kbd in 2014. If anything, they just didn’t cut back production in the face of increasing U.S. production over the last several years.
Truth Has A Liberal Bias on Sat, 13th Feb 2016 5:49 pm
As well by looking at the mazma link it looks like if you select world and look at world exports, the green bit, it’s been flat since 2005. So there is as much total liquids for sale on the world market for importers to buy in 2014 as there was in 2005. Pretty close anyway. If crude was distinguished from total liquids it’d probably be down is my guess. When the shit hits the fan it’s going to get very interesting!
rockman on Sun, 14th Feb 2016 2:06 pm
Truth – Which emphasizes the point I keep pounding: the KSA and the Rockman et al can only control how much oil they sell. Not the price…the refineries (via consumer affordability) set the price of oil. They did just the same as when oil was $100/bbl as they have done now at $30/bbl.
Apneaman on Sun, 14th Feb 2016 2:49 pm
rockman, try your best to go faster then that way you can see your life’s work murder your daughter before you kick lol. Might see it anyway since AGW and ecosystem collapses are nonlinear. What a proud moment that will be for you and the rest of the Texas cancer crews.
THE HUMAN COST OF THE HOTTEST YEAR ON RECORD – CLIMATE CHANGE AND EL NINO
DROVE DISASTERS WORLDWIDE IN 2015
2015 disasters in numbers
346 reported disasters
22 773 people dead
98.6 million people affected
US$66.5 billion economic damage
http://cred.be/sites/default/files/2015_pressRelease_disastersInNumbers.pdf
I’m betting it’s worse than what they are counting.
Climate change driving species to the Earth’s poles faster than predicted, scientists say
http://www.abc.net.au/news/2016-02-09/climate-change-driving-species-to-the-poles-scientists-say/7152682
rockyboy, do you believe in all that christian bullshit along with all that other texas conservatard crap you spew? If so then consider that when you and the other FF cancer monkeys who can never get enough DIE that you will be joining your boy judge Scalia, burning in the lake of fire for all eternity for your insatiable destructive greed. Destroying the Lord’s wondrous creation in your lust for more more more. Wiping out untold species that the creator took millions and millions of years to develop in just a couple of generations of rapicious living and status seeking.
Of course, I don’t believe any of those desert fairy tales. Nope, you just a mindless ape following your reward seeking programming. Another terrified ape that would do anything not to slip even one rung on the ape social ladder. Be careful never to let slip what you know is coming to you fellow Texans. They would punish you mighty eh?
That whole christian dominance principle is quite accurate in it’s expression of the biological imperative. Thousands of years later, psychology, neuroscience, behavioral biology, etc comes along and confirms that being fruitful and multiplying and dominating the planet to get our rewards is exactly what we are supposed to be doing. There is only a disagreement on the reason why. Spiritual or chemical. What’s the fucking difference at this point eh?
Singular Purpose – Reward
“If humans were free to do anything and were not continuously shunted into behaviors resulting in rewards, then the species would likely go extinct. It would be perfectly acceptable to spend ones time counting the blades of grass in the front lawn until death from lack of nourishment occurred. Instead of having free will to do anything we please, the brain has evolved to make sure we pursue things that feel good, things that when experienced result in the release of dopamine. A positive experience results in a memory, reinforced through the release of dopamine which is more likely than other memories to reenter our working memory at a future date. In other words, our working memories, our minds, are set up to preferentially entertain thoughts of rewards upon which we can act. Given all the things there are to think about in this world, the individual’s brain is likely to be entertaining thoughts of eating, where to eat, sex, whom to pursue as a mate, and if the prefrontal cortex is fully taxed there may even be elaborate plans to achieve some future reward. We may also think about or worry about things that are dangerous, like whether the IRS is going to audit our tax returns, whether the pit bull down the street will chase us while we’re taking a walk, whether our blood pressure is elevated and so forth. These thoughts are preferential and automatic, entering the working memory much more often due to their strength and importance to our survival. We are not fully in control of what think about, the brain makes the selections for us, making sure we’re almost always considering our next reward and/or avoiding danger.”
http://megacancer.com/2016/02/12/singular-purpose-reward/
Apneaman on Sun, 14th Feb 2016 3:02 pm
Wowzer! Just look at all this fine work by the Texas cancer crews.
California Capped a Massive Methane Leak, but Another is Brewing — Right Here in Texas – VIDEO
“Every hour, natural gas facilities in North Texas’ Barnett Shale region emit thousands of tons of methane — a greenhouse gas at least 20 times more potent than carbon dioxide — and a slate of noxious pollutants such as nitrogen oxides and benzene.
“The Aliso Canyon leak was big. The Barnett leaks, combined, are even bigger. But regulators in Texas have done very little to address this well-documented problem.”
“Researchers at the Environmental Defense Fund, working with university researchers in Colorado and Michigan among others, estimate that the more than 25,000 natural gas wells in the Barnett Shale emit as much as 60,000 kilograms of methane every hour. That’s more than the 58,000 kilograms per hour the Aliso Canyon was emitting at its peak back in November.
In total, the Barnett emissions amount to 544,000 tons of methane every year — 8 percent of nationwide emissions. And before a glut of natural gas flooded the market and suppressed prices, Texas saw its natural gas production — and with it, emissions levels — skyrocket.”
https://www.texasobserver.org/fracking-barnett-shale-disaster/
Apneaman on Sun, 14th Feb 2016 4:23 pm
That’s some serious cancer wielding power for the fossil fuel boys – to reach into the womb itself and inflict your cancer on others babies before their first breath. Drunk with god/Satan like power. More more, hurry, hurry we don’t want to leave any in the ground before we go extinct.
“Insidious, Invisible” Impacts on Baby Health: Toxic Exposure and Preterm Births
“Because these [toxics] are insidious, or invisible, they are easily dismissed or ignored. But they can have grave effects on pregnancy and a child’s development,” Bruce Lanphear, an environmental health expert at Simon Fraser University in British Columbia, says in the video.
Nearly one in 10 babies in the U.S. is born preterm. About half of these early arrivals cannot be explained by known risk factors, such as multiple births, poor nutrition or infections. Lanphear and other experts say environmental toxics are generally overlooked and could be contributing to the nation’s staggering rate – among the highest in the developed world, even rivaling some developing countries.
The stakes are significant. Babies born prematurely face serious challenges, from uncertain survival through the first weeks of life to greater risks for future medical troubles including diabetes and heart disease. A study published in October warned that fewer weeks in the womb could derail brain development, potentially setting a child up for learning, attention and psychiatric problems.”
http://www.truth-out.org/news/item/34824-insidious-invisible-impacts-on-baby-health-exposure-to-toxics-and-preterm-births