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Page added on October 14, 2014
Privately, Saudis tell oil market- get used to lower prices
Saudi Arabia is quietly telling the oil market it would be comfortable with much lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the U.S. shale patch.
Some OPEC members including Venezuela are clamoring for production cuts to push oil prices back up above $100 a barrel.
But Saudi officials have given a different message in meetings with investors and analysts: the kingdom, OPEC’s largest producer, will accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations.
The discussions, some in New York over the past week, offer the clearest sign yet that the kingdom is setting aside its longstanding de facto aim of holding prices at around $100 a barrel for Brent crude LCOc1 in favor of retaining market share in years to come.
The Saudis appear to be betting lower prices – which could strain the finances of some members of the Organization of the Petroleum Exporting Countries – will be necessary to pave the way for higher revenue in the medium term, by curbing new investment and further increases in supply from places like the U.S. shale patch or ultra-deepwater, according to the sources, who declined to be identified due to the private nature of the discussions.
The conversations with Saudi officials did not offer any specific guidance on whether – or by how much – the kingdom might agree to cut output, a move many analysts are expecting in order to shore up a global market that is producing substantially more crude than it can consume. Saudi Arabia pumps around a third of OPEC’s oil, or about 9.7 million barrels a day.
Asked about coming Saudi output curbs, one Saudi official responded “What cuts?”, according to one of the sources.
Also uncertain is whether the Saudi briefings to oil market observers represent a new tack it is committed to, or a talking point meant to cajole other OPEC members to join Riyadh in eventually tightening the taps on supply.
One source not directly involved in the discussions said the kingdom does not necessarily want prices to slide further, but is unwilling to shoulder production cuts unilaterally and is prepared to tolerate lower prices until others in OPEC commit to action.
OPEC ANGST
With most other members of the cartel unable or unwilling to reduce their own output, the group’s next meeting on Nov. 27 is set to be its most difficult in years. OPEC has agreed to cut production only a handful of times in the past decade, most recently in the aftermath of the 2008 financial crisis.
On Friday, Venezuela – one of the cartel’s most price-sensitive members – became the first to call openly for emergency action even earlier. Foreign Minister Rafael Ramirez said “it doesn’t suit anyone to have a price war, for the price to fall below $100 a barrel”.
On Sunday, Ali al-Omair, oil minister of Saudi Arabia’s core Gulf ally Kuwait, appeared to be the first to articulate the emerging view of OPEC’s most influential member, saying output cuts would do little to prop up prices in the face of rising production from Russia and the United States.
“I don’t think today there is a chance that (OPEC) countries would reduce their production,” state news agency KUNA quoted him as saying.
Omair said that prices should stop falling at around $76 to $77 a barrel, citing production costs in places such as the United States, where a shale oil boom has unexpectedly reversed dwindling output and pushed production to its highest level since the 1980s.
Saudi oil officials have made no public comments on the deepening swoon in markets. Senior officials did not reply to questions from Reuters about recent briefings.
DON’T BE SURPRISED BELOW $90
Global benchmark Brent LCOc1 crude oil futures have fallen steadily for almost four months, dropping 23 percent from a June high of over $115 a barrel as fears of a Mideast supply disruption ebbed, U.S. shale production boomed and demand from Europe and China showed signs of flagging. [O/R]
Brent fell below $88 a barrel on Monday, hitting its lowest in almost four years, after news of the Saudi and Kuwaiti statements.
“In light of these comments, one should not expect any OPEC output cuts before the Nov. 27 meeting,” said Bjarne Schieldrop, chief commodity analyst at SEB in Oslo.
An OPEC delegate from outside the core Gulf Arab group said he did not think OPEC would cut output at the November meeting but added he believed the Saudis should cut output unilaterally:
“The question should be posed to Saudi Arabia”.
The growing difference in opinions means OPEC is heading for its most tense meeting since mid-2011 when it failed to agree on an increase in output despite a loss of Libyan production.
Until recently, Gulf OPEC members have been saying that the price dip was a temporary phenomenon, betting on seasonal demand in winter to prop up prices. But a growing number of oil analysts now see the latest slide as something more than a seasonal downswing; some say it is the start of a pivotal shift to a prolonged period of relative abundance.
Rather than fight the decline in prices and cede market share in the face of growing competition, Saudi Arabia appears to be preparing traders for a sea change in prices.
The Saudis want the world to know that “nobody should be surprised” with oil under $90 a barrel, according to one of the people. Another source suggested that $80 a barrel may now be an acceptable floor for the kingdom, although several other analysts said that figure seemed too low. Brent has averaged around $103 since 2010, trading mostly between $100 and $120.
While the latest discussions are the bluntest efforts yet to signal the shift in Saudi strategy, early signs had already begun sending shivers through the oil market. In early October the kingdom cut its official selling prices more sharply than expected in a bid to maintain customers in Asia, widely seen as the opening shots in a price war for Asian customers.
“Riyadh’s political floor on oil prices is weakening,” Robert McNally, a White House adviser to former President George W. Bush and president of the Rapidan Group energy consultancy, wrote in a note to clients following a trip to Saudi last month.
McNally said he is not aware of any specific Saudi price or timing strategy, but told Reuters that Saudi Arabia “will accept a price decline necessary to sweat whatever supply cuts are needed to balance the market out of the U.S. shale oil sector.”
As that message began to dawn last week, the price rout quickened, with Brent lurching to its lowest level since 2010.
“Until about three days ago the absolute and total consensus in the market was the Saudis would cut,” said McNally. That is no longer a foregone conclusion, he said. “The market suddenly realizes it is operating without a net.”
39 Comments on "Privately, Saudis tell oil market- get used to lower prices"
Plantagenet on Tue, 14th Oct 2014 9:51 am
Who ever dreamed the Saudis would produce full out and crash the oil market? Good news for all the grandpas driving 3mpg Winnebagos
Feemer on Tue, 14th Oct 2014 10:07 am
Well hopefully lower oil prices will help stimulate growth in Europe. And it will hopefully force Russia to become a more neutral player in Ukraine.
Northwest Resident on Tue, 14th Oct 2014 10:22 am
Plant — I’m sure you’re joking about the “good news for all the grandpas”.
Being a shale oil cheerleader and recognized expert on shale oil, I’m surprised that you would have a joking attitude about the drop in oil prices.
Based on what I read and understand about oil prices, your precious fracking companies who you miss no opportunity to defend and promote are going to start dropping like flies if the oil prices remain low (and keep heading lower).
Question for you: In your analysis, what will be the fate of shale oil extraction companies with these lower oil prices? In answering, please apply your significant understanding of Econ 101 principles to explain how the market will react.
Here, let me help you:
“To be clear: the frackers have been showing profits on their P&L statements — lots of them — but it’s the balance sheet you have to look at to understand that they are borrowing so much money to build so many more wells that they are DROWING IN DEBT. The number of fracking wells has quadrupled in five years, to more than 1300. The frackers aren’t doing this because they want to — they HAVE TO, because the wells play out in four to five years. As Bloomberg Businessweek puts it, “US Oil Producers May Drill Themselves into Oblivion.”
The 60 fracking companies (almost all of them) that Bloomberg tracks, in the year ending June 30, spent an average of $1.17 for every dollar they earned. It’s the oldest joke in retail; if you lose money on each unit you sell, you make it up with volume. The frackers no longer think it’s funny; they have racked up $50 billion in debt in just three years, and are now carrying $190 billion, most of it raised with JUNK BONDS.
Keep in mind that these less than stellar results were achieved in a period when oil was selling at $100 and more. Now that it seems headed south from $80, even the nominal, paper profits are going away and all these operators, who were teetering at the edge of solvency in the good times, are going to be toppling into the swamp very quickly.”
I await your learned analysis, Plant, oh knowledgeable one. Please educate me. I await your expert and scientific dissertation on the subject.
bobinget on Tue, 14th Oct 2014 10:37 am
Some privacy!
WE are being subject to a major proxy war between Saudis and Russians for control of OPEC.
Russia and the Saudis are competing for the fastest growing oil market in the world. Asia.
I’ve been predicting Russia will eventually win but I’ve been wrong before.
One news release tells us KSA is cutting back on production. Another, (secret, don’t tell anyone) news release tells us KAS will continue to pump full bore till (Russia) cries uncle.
As it happens, Russia has forsaken Europe and is
trying to capture most Asian markets. The Saudis, not ones to give up easily, are undercutting so as to
keep Indian and Chinese buyers happy.
(auto, truck, tractor sales in India and China are off the charts and show NO signs of retrenchment) So much for the RATE of growth. Actual GDP slated to be be 7.5% for China .
India: http://www.bloomberg.com/news/2014-08-29/india-growth-exceeds-estimates-after-rbi-holds-interest-rates.html
Lesson one.. Don’t confuse the RATE of growth (soft landing) with actual consumption.
http://www.platts.com/latest-news/oil/london/iea-cuts-estimates-for-2014-2015-oil-demand-growth-27727844
Excerpt:
It said it had reduced its estimate of Chinese oil demand growth for 2014 to 2.3% compared with 2.4% in last month’s report.
“Expectations of weaker, albeit still rising, economic growth have similarly trimmed the 2015 [China] forecast, by 50,000 b/d over last month’s report, to 10.6 million b/d,” it said.
The IEA also cut its estimates of the “call” on OPEC crude for the fourth quarter of 2014 by 300,000 b/d to 30.3 million b/d and for 2015 by 200,000 b/d to 29.3 million b/d.
It reduced the call on OPEC for Q1 next year by 100,000 b/d to 28.8 million b/d and for Q2 2015 by 200,000 b/d to 28.7 million b/d.
For the third and fourth quarters of 2015, it cut the call by 400,000 b/d and 300,000 b/d to 29.9 million b/d and 29.8 million b/d, respectively, meaning the call for all of 2015 is below OPEC’s current production ceiling of 30 million b/d.
DEMAND MOMENTUM
Despite the lower call on OPEC, the IEA said it expected momentum to gather pace for global oil demand in 2015, albeit at a slower rate than projected last month, as the macroeconomic backdrop improves.
Danlxyz on Tue, 14th Oct 2014 10:38 am
For those of us who want a review of what happened in the 1980’s when oil went down to $10, here is a good article.
http://finance.yahoo.com/news/facing-oil-glut-saudis-avoid-1980s-mistakes-halt-005348902–finance.html
bobinget on Tue, 14th Oct 2014 10:56 am
Under-reported news;
While Turkey refuses to intervene in Syria, (Iran forbids)
It’s my belief IS will overrun towns and villages along the Turkish border. NATO member Turkey is permitting
US airstrikes on IS held Iranian territory out of Turkish airbases. How much longer will IS refrain from attacking towns and villages along the border?
WHEN will we know this particular oil war went from proxy to direct? That day came and went when we see
upward of a half million Syrian war refugees, the largest since WW/2 ,on the move.
People who generally don’t travel far from home are scattered across the Mideast.
http://www.vagazette.com/news/sns-rt-us-mideast-crisis-turkey-fighters-20141014,0,3060808.story
Anger as wounded Syria Kurds die stranded at Turkish border
SURUC Turkey (Reuters) – With medical supplies depleted in the war-ravaged north Syrian town of Kobani, Kurdish activist Blesa Omar rushed three comrades wounded in battle against Islamic State fighters straight to the border to dispatch them to a Turkish hospital.
He spent the next four hours watching them die, one by one, from what he believes were treatable shrapnel wounds, while Turkish border guards refused to let them through the frontier.
“To me it is clear they died because they waited so long. If they had received help, even up to one hour before their deaths, they could have lived,” said Omar, 34, an ethnic Kurd originally from Iraq who holds Swedish nationality.
“Once the soldiers realized they were dead, they said, ‘Now you can cross with the bodies.’ I cannot forget that. It was total chaos, it was a catastrophe,” he said, choking back tears.
Deaths of wounded fighters held up at the border have become another emotive charge in a litany of Kurdish grievances against Ankara, which Kurds accuse of turning its back on their kin fighting across the frontier against Islamic State.
The anger has brought violence to Turkey itself: Turkey’s 15 million-strong Kurdish minority rose up last week in riots in which at least 35 people were killed. On Tuesday, there were reports that Turkish war planes had bombed Kurdish militants for the first time in two years.
Turkey says it has been generous to Kurds, taking in 200,000 refugees from the Kobani area since Islamic State fighters launched their offensive four weeks ago.
But as the United Nations warns of a potential massacre in Kobani in full view of Turkish tanks that have done nothing to help protect the town, Kurdish anger threatens to unravel a peace process to end a decades-long insurgency in Turkey itself.
Kurds who have fled Islamic State attacks for shelter in Turkey say they have faced intimidation, including arbitrary detentions last week.
markisha on Tue, 14th Oct 2014 10:57 am
In my opinion the prices are loosing touch with reality. Money casino is behind all of this. who knows where this all is going
Davy on Tue, 14th Oct 2014 11:11 am
@ Bob – auto, truck, tractor sales in India and China are off the charts and show NO signs of retrenchment) So much for the RATE of growth. Actual GDP slated to be be 7.5% for China .
Bob be careful of equating transport growth to the real growth and health of China’s economy. There is far too much going on between the lines in China to equate anything with certainty. China has huge unrealized bad debt, excess credit creation, a housing bubble, and overcapacity in heavy industry. A true figure of actual growth would have to discount these unproductive investments. An investment is not an investment if it is not creating a real return. It is nothing more than economic waste not growth. The whole transport sector investment is a sign of more mal-investment. At some point all these vehicles and transport infrastructure will not bring a return if fuel shortages make them underutilized. China in particular is recklessly investing in these sectors almost without control.
rockman on Tue, 14th Oct 2014 11:17 am
Dan – Great link. Folks should read. But they do overstate the impact of N Sea production. From 1980 to 1986 it only increased by 1 million bopd (about 1.5% of global production) compared to the almost 3 million bopd by 2000. And IMHO they don’t give enough credit to global recession.
JuanP on Tue, 14th Oct 2014 11:38 am
I believe KSA and the USA are playing a price game against Russia, Iran, and Venezuela. This is their last chance to bring down these enemies before the PO dynamics make it impossible for them because demand will outstrip supply and raise prices, IMO. We are using the same weapon Reagan used to destroy the USSR, low oil prices.
Never mind the consequences for any of us, insignificant insects.
igneous11 on Tue, 14th Oct 2014 12:43 pm
Northwest Resident:
What you say about “Based on what I read and understand about oil prices, your precious fracking companies who you miss no opportunity to defend and promote are going to start dropping like flies if the oil prices remain low” is simply NOT true.
You might want to check your comprehension skills there bud.
They may stop drilling horizontal shale wells at some point but the companies themselves will be just fine.
Many of them have diversified assets in many locations. Companies like Continental, based in Oklahoma just tentatively announced a huge Oklahoma discovery.
Conoco Philips, obviously isn’t going anywhere. I think Halliburton, NOV, Baker Hughes, Schlumberger, etc. will all be fine as well.
I just looked at the 10-Q for QEP, a midsize company I have done a lot of work for in the Williston Basin, North Dakota.
Although they lost about $90 Million last quarter, They gained $17 million this quarter last year.
They also have $702 Million cash and $555 Million accounts receivable, with about $10.5 Billion Total Assets. Yes, I think they will be fine if they have to stop drilling or awhile. And they are good companies, drilling fairly cleanly with great safety, environmental records.
igneous11 on Tue, 14th Oct 2014 12:45 pm
*Excuse me, a gain of $178 Million Q2 last year.
TIKIMAN on Tue, 14th Oct 2014 12:54 pm
This will collapse the shale oil industry.
Davy on Tue, 14th Oct 2014 12:58 pm
Juan, PO dynamics does not have to play out with demand outstripping supply. We could see demand destruction eliminating supply in a vicious downward spiral in what would basically be a BAU growth implosion pre-collapse. But I do agree it is still possible for demand to overtake supply if the BAU ship can hold together.
westexas on Tue, 14th Oct 2014 1:01 pm
Here’s a What If.
What if the Saudis have been unable to match or exceed their 2005 net export rate of 9.1 mbpd (total petroleum liquids + other liquids, EIA), and they have been watching increasing US tight/shale production with concern. In 2013, their net exports were 8.7 mbpd, versus 9.1 mbpd in 2005.
What if they have been quietly waiting for a decline in global demand, as an opportunity to punish the tight/shale producers price wise by simply maintaining production and net exports, in the face of declining demand? And of course, they have emerged from the high demand summer season in Saudi Arabia.
Perk Earl on Tue, 14th Oct 2014 1:20 pm
“I believe KSA and the USA are playing a price game against Russia, Iran, and Venezuela.”
That will zing US fracking? Does politics trump increasing US oil extraction? If it stops due to low oil prices, maybe they figure later when prices rise again the fracking will resume?
Perk Earl on Tue, 14th Oct 2014 1:24 pm
http://www.bloomberg.com/energy/
Just checked oil prices:
WTI -2.54 to 83.20
Brent -2.81 to 86.08
rockman on Tue, 14th Oct 2014 1:52 pm
Juan – “…to bring down these enemies”. And what do you envision “bringing down” will look like? Maybe to so damage their economies as to inhibit oil production? Maybe these three major suppliers of global oil consumption have such severe social unrest their oil fields slip into disrepair? And that’s going to lessen the impact of PO?
So if Russians began to suffer financial degradation they’ll be less likely to forcibly take what they need from their neighbors? So the Iranian economy goes to sh*t and they’ll embrace the west…and maybe even Israel?
Not that history always repeat itself exactly but I seem to recall some downside to such efforts focused at Germany and Japan last century. I think the total body count ran 50+ million. Will Germany be glad to see economic chaos in Russia, a major trading partner and supplier of the NG that fuels a very large portion of its economy? So the US and KSA are playing a “price game”? The same price game that increased the CURRENT price of oil 280% higher then it was just a decade ago?
In 2004 the value of KSA production was $92 billion for the year. At $80/bbl and the current production rate holding the value of KSA oil production for the next 12 months will be $280 billion. So in just 10 years the value of KSA oil production increases from $92B to $280B…AT $80 PER BARREL. And some how there’s the perception that the KSA is willing to “take a bullet” in an effort to hurt Russia et al and make the “sacrifice” for the west?
And folks need to remember what happened the last time oil prices took a big dip in early ’09: China went into a feeding frenzy. $80/bbl oil is great…if you’re the one buying it. So here’s the big question: who will be buying this “cheap oil” if there are more buyers with the capital then there are bbls being sold? Perhaps some importers will find out which exporter is really their “friend”.
As they say: Be careful what you wish for… you might get it. LOL.
Nony on Tue, 14th Oct 2014 2:19 pm
Rock has been wrong about the global recession thing for the 80s for a long time. THe recession was 3 years before the price drop. And price was down for 20 years throughout a period of massive increases in economies and in overall production. Doesn’t stop him from repeating stuff.
NWR: I could care less if the shalies bite it. I like them for PREVENTING the $150 oil. If some of them bite it because other production drops the price to where they are not profitable, I don’t care. I wanted the lower prices in the first place! [Although how to reconcile lower prices and increasing production with Hubbert’s papers as well as the Campbell/Deffeyes silliness baffles me.]
P.s. I saw 2.99 at the pump today. Was thinking of you guys.
JuanP on Tue, 14th Oct 2014 2:26 pm
Rock, I’d say regime change is the endgoal for the three countries I mentioned.
I just think that the political considerations I mentioned above are part of what is going on. The US is taking advantage of a relative advantage provided by increased US oil production to put pressure on KSA. Also, KSA may want to keep its market share by lowering prices. This could make some of the KSA competitors’ oil production uneconomic.
The way I see it, the USA government is taking advantage of this to achieve its objectives.
I think this is extremely reasonable and rational behavior on the part of the US government. If I was in their place and had the same objectives, I would do just that. Take advantage of a fall in oil prices to put economic, political, and social pressure on unfriendly oil exporting nations.
JuanP on Tue, 14th Oct 2014 2:28 pm
Davy, Your point is valid. It could play either or both ways.
Plantagenet on Tue, 14th Oct 2014 2:33 pm
@Bobinget
Turkey isn’t holding back from invading syria because Iran forbids it. Turkey is Sunni and Iran is Shia—Turkey could give a fig what Iran thinks. Turkey is holding back from invading Syria because their goal is to topple Iran’s proxy Shia regime in Damascus—not fight against their fellow Sunni in the Caliphate. The Obama administration, much like the Bush administration before them, don’t seem to get the importance of the Sunni-Shia divide. Obama seems to content to be the Shia’s air force in both Iraq and Syria—and all that will do is tick off the Sunni.
Davy on Tue, 14th Oct 2014 2:34 pm
Noo, your being cocky again. The cold blooded, self centered, and nonchalant attitudes about winners and loosers fails to acknowledge we are all in this together.
Nony on Tue, 14th Oct 2014 2:51 pm
I am pro consumer, Davy. A glut would be just fine with me. Less money for Harold Hamm’s ex-wife. Boohoo.
Feemer on Tue, 14th Oct 2014 2:53 pm
I hope the oil prices stay where they are at now. It’s still profitable for shale atm, but also really hurts Russia 🙂
ghung on Tue, 14th Oct 2014 3:14 pm
Nony: “Less money for Harold Hamm’s ex-wife. Boohoo.”
….and more stuff for Nony’s daughter, Honey Boo Boo.
Apneaman on Tue, 14th Oct 2014 3:35 pm
I always hear that the drug dealer, Ronald Regan took down the USSR. Myth.
http://cassandralegacy.blogspot.ca/2014/10/unleashing-oil-weapon-against-russia.html
Plantagenet on Tue, 14th Oct 2014 4:33 pm
The USSR is gone. Fact.
Davy on Tue, 14th Oct 2014 4:45 pm
Afganistan did more damage than Reagan.
Plantagenet on Tue, 14th Oct 2014 5:02 pm
Nero did more damage than Jimmy Carter.
Kenz300 on Tue, 14th Oct 2014 5:30 pm
The Saudi’s want to drive the price down to make alternatives uneconomical…….. Shale and tar sand plays need a lot more than $80 a barrel……….
The Saudi’s like their semi monopoly and do not want to see any serious competition develop.
This is one way to slow down the competition…. push them into bankruptcy.
GregT on Tue, 14th Oct 2014 5:52 pm
I wonder how many rounds of golf Nero played in a year?
GregT on Tue, 14th Oct 2014 6:12 pm
“Saudi Arabia will force the price of oil down, in an effort to put political pressure on Iran and Russia, according to the President of Saudi Arabia Oil Policies and Strategic Expectations Center’ 10 October 2014 15:40
http://www.aa.com.tr/en/economy/402343–saudi-arabia-to-pressure-russia-iran-with-price-of-oil
dissident on Tue, 14th Oct 2014 7:40 pm
Clueless western idiot leaders and their media mouthpieces. Russia is getting more revenue from its oil sales thanks to the fall in the ruble exchange rate, which has more than offset the price drop in oil.
The Russian economy operates on rubles and not dollars.
Makati1 on Tue, 14th Oct 2014 8:28 pm
Guesses and more guesses.
I think $80 oil will kill tar sands and fraking permanently. Why? If they can keep the price below $80 for a year or so, most tar sands and fraking will either stop production and/or go belly up. There will be no start-up when the price goes back up as the financing will be dead.
OR: I think that if it is a game against Russia, it will fail. Russia has $400+ Billion in foreign reserves it can pend before it is broke.
http://www.imf.org/external/np/sta/ir/IRProcessWeb/data/rus/eng/currus.htm#I
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aCfUrLO_ySjc
OR: China will back it’s partners Iran and Russia and keep them solvent until the Saudi’s have to back off. After all, $80 oil would give the Chinese some savings to invest other places, like Russia and Iran. AND, the other ME countries will be screaming at KSA long before that.
OR: Something we are not even considering will happen. One of those black swans up there…
Northwest Resident on Tue, 14th Oct 2014 9:02 pm
dissident — Great point! I personally don’t buy the conspiracy theory that SA is cutting their price in league with American evil-doers to shaft Russia.
But if anybody likes conspiracy theories, consider this one:
Shale oil companies are in a world of hurt, and that was true before this round of SA price cuts. The whole shale oil extraction industry is mired in astronomical debt and their Ponzi schemes are getting a lot of scrutiny lately — as true now as it was before oil prices started dropping.
Given that reality, and especially considering the fact that many investors have been fully duped into investing in shale oil by lies and hype and are facing significant losses on their investments, it wouldn’t surprise me at all if SA in league with certain TPTB elements arranged this price cut so that they have a built-in excuse as to why shale oil crashed and burned.
Never having to admit to “yeah, I suckered you into a bad investment” has a lot of value for certain financial entities, and if they can point their collective fingers at SA and say “they did it, honest”, then they’re off the hook — at least, as far as the ignorant masses are concerned.
But regardless, the shale oil boom is going bust — tomorrow, next week, maybe a year from now — but it IS going bust. And that has huge, major ramifications for this BAU illusion that TPTB have built for us, of which shale plays have been a major component.
SA lowering prices means a LOT. We may not know exactly why they are doing it, and we obviously don’t know. That’s privileged information. But just the fact that prices are going this low for oil means a lot of things are getting ready to change, and not necessarily for the better.
MKohnen on Wed, 15th Oct 2014 12:59 am
I think the KSA is playing a dangerous game, but the game must be played no matter what. The global economy is collapsing. Oil producers are staking their futures on strategies that acknowledge that no one is controlling the price any more. Lower prices are occurring because of peak oil. PO has curtailed growth. Maybe we are “awash” in oil, but that’s only because Keynesian economics stopped working long ago when the “cheap” energy sources dried up. Nony can give us all the “Econ 101” lessons he wants, but there’s no need for global QE in a world where supply and demand is working. I think for the KSA, the real risk is that the low prices last too long and they are forced to cut social spending. When that happens, support for the Islamic State will skyrocket in the KSA, and the House of Saud could find itself without a head, literally. As far as regime change goes, I’d bet on Putin’s chance of survival long after the Saudi monarchy is pushing up desert daisies.
Davy on Wed, 15th Oct 2014 6:28 am
I echo MK in his rebuff to the NOo. NOo, I respect your analysis and economic knowledge but MK is pointing out a flaw to your analysis and that is financial repression. We do not have normal markets now. We also have known market manipulation and high level sanctioned corruption. NO0, how can econ 101 adequately adjust for those variables?
Nony on Wed, 15th Oct 2014 9:09 am
Production remains at same level [slightly higher] as 2 years ago. This is not a demand drop causing price drop. It is a supply effect. If demand side was the driver, we would have lower volume.