Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on November 6, 2014
Saudi, Venezuelan Oil Officials Meet, a Sign of Pressure on OPEC Countries
Top officials from major oil producers Venezuela and Saudi Arabia held a rare bilateral meeting Wednesday as OPEC member countries grapple with a continuing price slump.
Venezuelan Foreign Minister Rafael Ramirez, who until recently was head of state energy giant Petróleos de Venezuela, or PdVSA, and is the country’s OPEC representative—and Saudi Oil Minister Ali al-Naimi usually meet at scheduled gatherings. But the two convened on the sidelines of a climate conference on the Venezuelan resort island of Margarita in a sign of the pressure building up on the Organization of the Petroleum Exporting Countries amid crude oil’s price drop of more than 25% since the summer.
The two countries hold opposing attitudes toward the price slump. Venezuela’s public finances are reliant on high prices while the Saudis are reluctant to take steps to support prices by cutting its oil output. This week, Saudi Arabia lowered the price for crude sold to the U.S.—a move seen to maintain its market share for exports to the country.
“It was an excellent meeting and we have excellent relations as ministers and as countries,” Mr. Ramirez told reporters Wednesday after the nearly hourlong meeting held behind closed doors.
Asked if he was concerned by the fall in oil prices, Mr. Ramirez responded, “It worries us all.”
Mr. al-Naimi didn’t take questions after the meeting and was quickly escorted from the state-run hotel where the climate conference is being held through Friday.
Mr. al-Naimi had long planned to attend the Venezuela conference, but the meeting with Mr. Ramirez was added to his agenda only recently, according to people familiar with the situation.
But if Mr. Ramirez was hoping the meeting will yield action by the OPEC kingpin, he will likely be disappointed, Saudi officials said in the run-up to the event.
“The message is going to be clear, and will be repeated again in the OPEC meeting: Saudi Arabia is not going to act as swing producer,” one of the officials said.
OPEC will hold its next assembly in Vienna on Nov. 27.
During past oil-price slumps, the group has acted collectively to rein in production to support prices. This time, its influence over the market has become limited because much of the oil flooding markets comes from booming shale-oil production in the U.S. that is beyond the group’s control.
That has effectively left OPEC members reluctant to cut their output in an increasingly competitive environment.
“Al-Naimi is going to explain to Ramirez that not much can be done at the moment and it is a cycle the market is going through,” said another Saudi official.
Of the OPEC members, Venezuela has been the most vocal about the rapid slide in oil prices since June. Last month, it made an unheeded call for an emergency meeting of the group.
Even before prices plummeted in the summer, Venezuela was confronted with a weak economy. The steep price drop in the commodity that makes up to 96% of the Venezuela’s export revenue has compounded its economic challenges.
President Nicolás Maduro has seen his popularity plummet to a record low, according to polls, as dollar shortages have led to a precipitous decline in the value of the local bolívar currency and contributed to scarcities of food and consumer goods.
The average price of OPEC’s oil fell to its lowest level since October 2010 earlier this week, sliding to $78.67 a barrel, according to data from its secretariat on Wednesday. Deutsche Bank estimates Venezuela needs a much higher oil price of $121 a barrel to balance its annual budget—one of the highest break-even prices in OPEC.
Saudi Arabia requires a lower price to balance its budget and has a healthier economy that could endure lower prices longer.
The country, the most powerful OPEC member, has remained quiet about the price slump. That silence is contributing to a rift emerging within the producer group ahead of its next semiannual meeting later this month.
Besides Venezuela, other OPEC members such as Libya have called for a reduction in the group’s output to help support prices, but Saudi Arabia has made clear it won’t act alone.
28 Comments on "Saudi, Venezuelan Oil Officials Meet, a Sign of Pressure on OPEC Countries"
louis wu on Thu, 6th Nov 2014 1:15 pm
“The message is going to be clear, and will be repeated again in the OPEC meeting: Saudi Arabia is not going to act as swing producer,” one of the officials said.
Perhaps a good way to save face and hide the possibility that they in fact can’t act as the swing producer anymore.If that is made undeniably clear what might that do to world oil markets?
rockman on Thu, 6th Nov 2014 3:51 pm
Louis – In one aspect the KSA can still be a swing producers: they can swing prices up anytime they want. All they have to do is cut production 2 or 3 million bopd. Which is what Venezuela is probably asking them to do. Of course Venezuela would do little or no cutting. Makes sense…if you’re Venezuela. Not so much for the KSA.
Everyone wants chicken for dinner. Not as many are willing to pluck the bird.
Plantagenet on Thu, 6th Nov 2014 3:56 pm
Maybe Venezuela can ask KSA to cut production in the name of socialist solidarity with the Bolivarian Revolution?
Nah. That won’t work.
Davy on Thu, 6th Nov 2014 6:23 pm
Venezuela is a fish about to be fried. Another reason to worry about above ground POD and supply if prices remain low for any length.
GregT on Thu, 6th Nov 2014 6:47 pm
If the KSA cut oil production by 2 or 3 million bopd, and the price was driven back up to $110bbl, they could sell 20 to 30 percent less and maintain the same income that they are making today. Which begs the question; Why would the KSA want to sell their finite resources faster, for less money, when all they need to do is cut back on production?
Short of an ulterior motive, this just doesn’t make any sense.
Nony on Thu, 6th Nov 2014 7:01 pm
I don’t know that KSA can actually make more money by cutting production. I think OPEC overall can, though. The issue is that they have to coordinate effectively as a cartel.
RSP on Thu, 6th Nov 2014 8:02 pm
KSA is only interested in maintaining market share. Letting the price drop, will hurt high cost production allowing them to maintain their power level and their market share…
RSP on Thu, 6th Nov 2014 8:06 pm
And even if Venezuela and other members beg for KSA to cut production, it is my believe that it will not happen, not in the short term…And those producers Opec and non-Opec which are suffering cash flow problems, will suffer very much economically and also politically.
rockman on Thu, 6th Nov 2014 9:31 pm
Greg – But isn’t that the key question: would they be able to sell that oil for $110/bbl? Depends on why you think oil has dropped to under $98/bbl. I think high oil prices have finally caught up with the global economy: it could continue consuming the same amount at those prices.
Every seller of products searches for the same sweet spot: the max income they can generate for a supply/price relationship. There’s no guarantee IMHO that $110/bbl would THE sweet spot for the KSA.
GregT on Fri, 7th Nov 2014 12:50 am
Rock,
I have yet to hear anyone come up with a concrete explanation as to the cause of the recent pullback, the speculation is all over the place. While I agree with what you are saying. It isn’t in any producer’s best interest to oversupply the market, especially not a large producer like the KSA. Russia needs high oil prices, so does the US, and regardless of US production numbers, the US remains a net oil importer. There are geopolitical games being played here. I have my suspicions as to what exactly they might be. I guess we’ll just have to wait and see how this all plays out.
Northwest Resident on Fri, 7th Nov 2014 1:54 am
…the speculation is all over the place.
What we don’t need to speculate about, however, are these documented facts.
1) Consumer spending is down
2) Chinese manufacturing is slumping
3) Chinese exports are falling
4) Shipping of raw materials used to make “stuff” that consumers are supposed to buy is near historic lows
5) Retail is doing a face plant on the asphalt with resulting massive layoffs and store closures and bankruptcies including name-brand national retailers
6) High tech is laying off thousands, including Microsoft and the usual culprit HP just to name a few
I think we need to face the fact that we’re heading downhill and picking up speed. Consumers can’t afford $80/bbl oil, and they damn sure couldn’t afford $100+/bbl oil. Saudi is selling their oil for what they think they can get for it. Cutting supply would only inflict more damage on the global economy, resulting in even less people with less money and less demand for oil.
We’re locked in a vicious cycle, and it could unravel very quickly at some point. “Violent unwind” is what the International Bank of Settlements is warning about.
Unless rockman goes out there and finds another Ghawar or two in the next few months, there’s not much doubt about where we’re heading.
The only thing that can light the afterburners on the global economy and power it out of this downward spiral is lots and lots of cheap energy — just exactly what we don’t have. And that’s just the way it is.
Davy on Fri, 7th Nov 2014 6:34 am
It is not primarily that anyone in particular can’t afford $100 oil. The problem is a global economy using less oil for a variety of reason causing the supply/demand irregularities, deflationary economic conditions, and poor financial conditions for investment.
We know expensive oil takes a toll that is clear. Yet dropping oil prices cause poor financial condition for the oil sector pressuring expensive oil production. This effect the markets as a negative growth factor. Oil price swings are disrupting up or down. The energy sector is large and a driving force in the FX and equity markets. Deflationary economics conditions are related to less economic activity winding down demand and the economic ability to pay higher prices. Econ 101 says excess supply pressures prices. Higher oil prices brought on some marginal supply. This is a global market for a vital resource the “sub” reasons are all over the place as geopolitical, speculation, cartel politics, and supply cycle.
I feel the primary influence is a weak economy. I follow ZH daily. I don’t agree with everything they say but they do show the Alt-economy. The alt-economy analysis is showing multiple slow down indicators across the board. Financial repression can support part of the economy with bubbles and Ponzi scheme activity with paper wealth and carry trades but it can’t directly drive real productivity at the foundation.
It is well known QE economics is a liquidity and rate game with intensions to drive demand from the top. It is hoped that inflated demand at the top will trickle down to the real economy. Paper growth and digital prices are not real growth. QE economics supports asset prices and the carry trade which indirectly pumps up the economy with debt instruments. Diminishing returns on debt instruments equals deflation. We are at diminishing returns on QE debt. Debt may initially stimulate inflation and activity but eventually if real growth is not driven at the bottom the debt removes productive activity from the equation through deflationary debt service.
Long term excessive debt further compounds with irregularities to the financial system not meant to be force feed debt. Debt has a fundamental place in traditional markets when it is unnaturally used for such a long time there are consequences and unintended consequences that often cause negative feedbacks. This is the case now. The real economy is struggling with forces of inflation and deflation from the irregularities of too much debt for too long. IOW too much debt with not enough real returns per debt levels. Consumers or Main Street is supposed to be a primary driver in the global economy supporting commodity dependent nations and export driven emerging markets. This is a fine oiled machine that has evolved over many years that is now being destabilized by unproven economic policy. In fact it could be said these policies in general have been historically catastrophic but they say this is different now or so they say.
Oil is reacting to these economic and financial irregularities on a global scale along with all the other intrigues. What could be messier than that? A vital commodity being pulled and shoved by so many forces. No wonder we can’t figure out where this ship is sailing.
marmico on Fri, 7th Nov 2014 7:10 am
What we don’t need to speculate about, however, are these documented facts.
Citations please on items 1 through 6. Then I’ll dance on your forehead.
Petroleum expenditures are now 3% of U.S. GDP. Big deal!
Davy on Fri, 7th Nov 2014 7:34 am
Marm, hi friend, it has been getting depressing here so it is good to hear from you.
Good luck pumping up the depressing news.
Is that dance called the Marmie?
marmico on Fri, 7th Nov 2014 8:50 am
A consumer surplus is not depressing. Gasoline prices are $250 per capita, annualized, lower than 6 months ago. That is one day pass for a family of 3 to a Disney theme park to escape the gloom of peakoil.com doomsteaders.
Here is a projection. Recreational goods and vehicles sales will be higher, on a monthly basis, than gasoline sales sometime in the next 6 months.
Da chart. Rocky won’t be yakking about his bass boat, though. -:)
Davy on Fri, 7th Nov 2014 8:57 am
Marm, can I go to Jackson Hole instead and ski? Disney world is so boring.
Northwest Resident on Fri, 7th Nov 2014 9:42 am
marmico — Here you go:
#1: Something Wrong? Layoffs Explode In America’s Big Old
http://wolfstreet.com/2014/11/07/layoffs-explode-in-big-old-american-tech/
#6: I can’t find the exact article I read that prompted me to put that on the list of “doomsday indicators” at the #6 spot, but there are plenty out there if you search for “consumer spending down”. The articles I find with that search all pertain to American economy only, but the one I read some time yesterday (and can’t find) was looking at Europe, Asia — the whole world basically where credible (to me) points were made that consumer spending is down down down.
Consumer Spending in U.S. Unexpectedly Declines
http://www.bloomberg.com/news/2014-05-30/consumer-spending-in-u-s-unexpectedly-falls-as-incomes-slow.html
Northwest Resident on Fri, 7th Nov 2014 9:49 am
marmico — I’m sure that consumer spending dip in America is due primarily to all the one-percenters and the teaming masses of wealthy upper class families just under one percent taking time off from shopping to start putting together their Christmas shopping lists — you know, Porches, BMWs, fur coats, lots and lots of bling, yachts — all that stuff that drives consumers spending in America. Wouldn’t you agree?
Who won’t be contributing to consumer spending? There’s a few of those losers who just refuse to do their part in driving us out of this economic slump by consuming wantonly, for example:
The annual report from the United States Department of Agriculture showed that about 45 percent of food stamp benefits went to children under 18, totaling about 20 million youngsters. Nine percent of recipients were age 60 or older, and nearly 10 percent were disabled adults who were under 60, according to the analysis of food stamp usage for the fiscal year that ended in September 2012.
The total cost of the program in the 2012 fiscal year was $78.4 billion.
marmico on Fri, 7th Nov 2014 10:52 am
#1. If you would have bothered to read the comments, you would understand that the Wolf is partially blind; Richter can only see out of one eye.
#6. Sorry, consumer is spending is rising since the bottom of the Great Recession, no matter how you cut the data.
The number of food stamp recipients and transfer dollars peaked in 2013.
Next.
GregT on Fri, 7th Nov 2014 10:59 am
Sorry guys. I don’t buy it.
According to the IMF:
“The global growth projection for 2014 has been marked down by 0.3 percent to 3.4 percent, reflecting both the legacy of the weak first quarter, particularly in the United States, and a less optimistic outlook for several emerging markets. With somewhat stronger growth expected in some advanced economies next year, the global growth projection for 2015 remains at 4 percent.”
http://www.imf.org/external/pubs/ft/weo/2014/update/02/
If growth is maintained at 3.4 percent, the entire global economy doubles in 21 years. If it is maintained at 4%, it doubles in 17.5 years. While true, we have seen a slowdown, economies still continue to grow. That would mean an increase in oil demand, not a decrease. Global oil production has basically flatlined for the past few years.
China itself, with close to one fifth of the world’s population, grew at a rate of 7%. If global oil production was rising at a rate faster than economic output continues to rise, I might buy into the glut theory. It isn’t, so I don’t.
Northwest Resident on Fri, 7th Nov 2014 11:04 am
marmico — That explains it all. So, all is well. BAU is guaranteed far into the future. Our lives of over-consumption and oil burning happy motoring is carved in stone. Trillion$ in global debt is just a fart in the wind, no big deal. Whew! I thought we were in trouble. Thanks for the good news, you made my day! 🙂
Davy on Fri, 7th Nov 2014 11:26 am
Greg, again with you. Real growth is overstated in all major economies and could crash at any moment considering all the black swans circling.
GregT on Fri, 7th Nov 2014 11:41 am
Davy,
Agreed. I don’t necessarily believe the numbers either. Much of that growth is in reality, massive increases in debt. Still, everywhere that I have travelled in the past few years, I have seen an exponential rise in population growth, and with it, an exponential rise in traffic on the roads.
I see this latest pullback in oil prices as manipulation. Large oil importers, such as the US, stand to gain the most. Oil producers like Iran, Venezuela, and Russia, are seeing their economies being decimated. OPEC has no interest in maintaining an oil production ‘glut’. I’m waiting with baited breath to see what happens on November the 27th.
Davy on Fri, 7th Nov 2014 11:50 am
Greg, I can’t wait to see liquid fuel rationing. The crisis will change attitudes and lifestyles for the better that is if it does not kill us in the process.
GregT on Fri, 7th Nov 2014 12:04 pm
I agree Davy. I see lower oil prices as a big negative. The sooner we begin the ‘transition’, the better.
marmico on Fri, 7th Nov 2014 2:30 pm
Thanks for the good news, you made my day!
You’re welcome. I suggest that you extend your network and read more than the zero deadhedge twitter nutters.
Here’s the retail sales chart adjusted for population and inflation. Doug Short updates the data monthly.
Davy on Fri, 7th Nov 2014 2:34 pm
Marm, may I ask what is wrong with ZH? Is it too bearish and anti American for you?
Northwest Resident on Fri, 7th Nov 2014 3:38 pm
” I suggest that you extend your network and read more than the zero deadhedge twitter nutters.”
Sure thing, marmico. I just added advisorperspectives dot com to my favorites list — the source of your population growth and inflation adjusted retail sales chart. What the heck? At first glance I see two articles posted on that site that I have seen posted over at ZH. I don’t believe everything I read at ZH, in fact, very little. And it looks like I’ll be very skeptical at advisorperspectives dot com as well. But same articles. Must be nutters at advisorperspectives dot com too, and I’m sure there are.
A website targeted at Financial Advisors. Well well well. What better source of hard hitting, no-nonsense fact-based reporting than that?! You may not know it, but I’m a software developer on a software product that is marketed directly to financial advisors — they are our prime customers. I deal with them all the time — definitely not the brightest bunch of bulbs, some quite dim witted as a matter of fact. Gullible as hell, just want to hear good news, go ballistic over tiny issues, cornucopians and fast-talking salesmen to the core. Gee, Marm, I think I just learned something about you!!
That retail sales chart is just exactly what those financial advisors want to hear. Good work! It made their day and kept them coming back to the website, which of course was the goal. More traffic equals more clicks equals more revenue, trust me, I know.
Now, for the well-rounded and non-specific target audience POV:
September 2014 compared with August 2014
Volume of retail trade down by 1.3% in euro area
Down by 1.2% in EU28
http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-05112014-AP/EN/4-05112014-AP-EN.PDF
Weaker Retail Sales Signal Smaller Spending Boost: Economy By Victoria Stilwell Oct 15, 2014 1:52 PM PT
http://www.bloomberg.com/news/2014-10-15/retail-sales-in-u-s-decreased-more-than-forecast-in-september.html
Just do a search, marmico — search for retail sales October 2014. You’ll find the truth somewhere outside of that bubble that you live in. Trust me, it hurts at first, but it is better for you in the long run.