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Page added on November 6, 2014

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U.S. Returns Fire in Saudi Arabia’s Oil War

U.S. Returns Fire in Saudi Arabia’s Oil War thumbnail

One day after Saudi Arabia declared war on U.S. oil producers by lowering prices in an attempt to dump cheap crude in the United States (US) market, the White House and private oil companies responded.  White House spokesman Josh Earnest said that the U.S. is monitoring the global oil supply and demand situation but has no comment on whether it might look at replenishing the Strategic Petroleum Reserve. Then, later in the day, the Wall Street Journal reported that BP is going to export ultra-light crude without the permission of the U.S. government in a move that not only starts to breakdown the US export ban, but also is a direct challenge to OPEC and other producers for market share.  Both of these developments temporarily gave support to the petroleum complex, but it still was not enough to overcome the perception of overwhelming supply and Bank of Japan Gov. Haruhiko Kuroda’ s prescription against the disease deflation.

Let us start with the White House comment on the Strategic Petroleum Reserve (SPR) that was obviously a thinly veiled message to Saudi Arabia. It was an attempt by the White House that they were not very happy with the Saudis price discounts and to remind them that there are steps that the U.S. can take to retaliate in the production war. Up until yesterday sources in SPR had said that the White House was actually looking into reducing the size of SPR, which currently holds about 690 million barrels by about 10 million barrels to about 590 million barrels. The need for SPR oil has been reduced because of the rise in US oil production. The Saudis feared that the U.S. dumping 10 million barrels of heavy crude into an oversupplied market would cut right into their bottom line.

Now what the U.S. may do is buy crude to offset a price collapse caused by Saudi dumping and support U.S. shale producers. It could also go further, tacking on a tax on Saudi oil, an issue that would at some point go before the world trade council. Of course, we are not there yet, but that was the message.

The Saudis other nightmare is the lifting on the U.S. oil export ban, which already is falling apart. How to define what is crude and what isn’t crude is harder as U.S. shale oil is so light in gravity it floats above the normal West Texas Intermediate scale. The Wall Street Journal reported that BHP Billiton cut a deal to sell about $50 million of ultralight oil from Texas to foreign buyers without formal government approval. The Journal says that this may “be only the first of many such moves as energy companies seek new  markets and higher prices for the surge of crude now pumped in the U.S.”

If the U.S. government remains silent and uses as a loophole the high quality of oil as not fitting the definition of crude oil it will open up the floodgates and unleash U.S. shale oil into the world. The Saudis have seen the writing on the wall and that is why we are seeing these acts of pumping desperation in an attempt to save some of their threatened market share.

Yet there are also other forces driving down oil that closed yesterday at the lowest level since June of 2011 and a RBOB future that closed at a 4 year low. Central Bank Medicine! Bank of Japan Gov. Haruhiko Kuroda sent the Yen tanking and the dollar to new heights after he said BOJ is determined to do whatever it takes to hit the inflation target in two years.  He went further by saying that  “In order to completely overcome the chronic disease of deflation, medicine should be taken until the end,” “Half-baked medical treatment will only worsen the symptoms.” So the markets are drinking the Kool-Aid and while he may be popping up Japans stocks but it is making many commodes look sick, especially gold and silver. So if it is a war against deflation then shouldn’t commodities go up if you have the right medicine? I mean tanking gold prices don’t really signal inflation, now does it. Of course many commodities will be more expensive in Yen terms yet the base is falling. Maybe I need some of that Japanese medicine or at least whatever Gov. Haruhiko is drinking.

Fox



61 Comments on "U.S. Returns Fire in Saudi Arabia’s Oil War"

  1. ghung on Thu, 6th Nov 2014 7:40 am 

    “… BP is going to export ultra-light crude without the permission of the U.S. government…

    Interesting, that. We’ll see if the Feds role over. What’s more important; enforcing current law or thumbing one’s nose at OPEC?

  2. Davy on Thu, 6th Nov 2014 8:18 am 

    G-Man, maybe it is a US gov plan to have a fall guy for a failed plan. What better group then the hated BP. The US gov and BP are tight in the GM and other energy plays. Why not use them to break the law for the US gov to change a unworkable US law?

  3. ghung on Thu, 6th Nov 2014 8:34 am 

    Since this is a Fox article, and rather poorly written at that, best to go elsewhere for some clarity. Seems I recall some mention of this from several months ago.

    Bloomberg:

    http://www.bloomberg.com/news/2014-03-06/bp-splitter-refinery-seen-skirting-u-s-oil-export-ban.html
    “The British oil giant has signed on to take at least 80 percent of the capacity of a new $360 million mini-refinery in Houston that will process crude just enough to escape restrictions on sales outside the country.

    Amid a flood of new U.S. oil, the demand for simple, one-step plants capable of transforming raw crude into exportable products such as propane is feeding a construction boom along the Gulf Coast. If the new processing units continue to multiply, they could render moot the politically sensitive debate over whether to ease the restrictions in place since the Arab oil embargo of 1973.

    “It’s a relatively inexpensive way around the export prohibition,” said Judith Dwarkin, chief energy economist for ITG Investment Research Inc. “You can lightly ruffle the hydrocarbons and they are considered processed and then they aren’t subject to the ban.”

    ….and OilPrice.com:

    http://oilprice.com/Latest-Energy-News/World-News/BP-to-Export-Crude-Avoiding-U.S.-Ban.html
    “BP is moving to export crude oil from the United States, but doing so in a way that avoids violating the export ban. It has agreed to take 80% of the capacity coming from a small refinery under construction in Houston. The $360 million facility to be operated by Kinder Morgan would partially-refine the oil, just enough to be categorized as a refined petroleum product, rather than crude oil. The U.S. has maintained an export ban on crude oil for 41 years, dating back to the 1973 oil embargo. The ban was intended to insulate the U.S. from price spikes and supply shortages.

    Funny thing is, both of these articles are from last spring; old news. Fox is just stirring the pot here, likely trying to build support for exports now that the Republicans are moving in.

  4. Kenz300 on Thu, 6th Nov 2014 8:47 am 

    Faux Noise —- you always need to understand their agenda when reading anything from them…..

  5. synapsid on Thu, 6th Nov 2014 10:30 am 

    I believe it was BHP that announced a day or so ago that they will be exporting condensate without Federal approval.

  6. Plantagenet on Thu, 6th Nov 2014 10:52 am 

    The Obama administration has already approved several waivers of the law so that US oil can be exported overseas. Its unlikely that the Obama people will force BP to obey the law against exporting US oil, when they already are allowing other oilcos to bypass the export restrictions.

  7. Solo Nutiket on Thu, 6th Nov 2014 11:40 am 

    If you didn’t know, OIL is a natural resource. Why sell oil now at a low price? We should continue and enforce the export ban and save our resources for our children and their children. Let the corporations get their oil to sell elsewhere.

  8. Dave on Thu, 6th Nov 2014 12:04 pm 

    And yet during the high oil prices the government told us all that they had no control or influence on the price of oil!…now they are basically admitting that they do!!! it’s all a scam and we have been raped!!!

  9. KCS on Thu, 6th Nov 2014 12:12 pm 

    Who wrote this piece of “journalistic” rubbish?

    Is it BP or BHP Billiton?

    Is it 10 million barrels or 100 million barrels?

    Are any of the other “facts” correct … or, even, factual?

  10. Selrahc on Thu, 6th Nov 2014 12:24 pm 

    We believe in capitalism, when it suits us.
    But when competition hurts the greed of the oil companies, our government steps in an says foul.

    The drop in oil flavor the 80%(middle class) not the 20%(the greedy class)when will our government be for us the (80%)

  11. Victor on Thu, 6th Nov 2014 12:31 pm 

    Many people said the US was doing this to hurt Russia. But I suspected it was Saudi Arabia doing this to kill US production. Either way, it’s hurting every OPEC nation except the Gulf States and some say may lead to a break up of OPEC.

  12. Chris Carpenter on Thu, 6th Nov 2014 12:38 pm 

    Your a fool if you don’t think this is good news. We have enough oil for our grandchildren’s grandchildren. Break the back of the Saudis and the OPEC Cartel. Why is our government’s hand in this business, that’s the problem. Republican or Democrat they shouldn’t be telling US oil companies where their product can be sold. Unless, you think government is the answer to everything.

  13. Keith Gould on Thu, 6th Nov 2014 12:46 pm 

    Who proof reads these articles? This is the WORST, most poorly written article I have read in years. Even the simple arithmetic cited in the article doesn’t add up. I suppose this is the best one can expect from our “lowest common denominator” society. Pathetic.

  14. Tom Johnson on Thu, 6th Nov 2014 12:48 pm 

    If you read the article and note the second paragraph where it addresses the
    SPR — check the math?!?!?!

    Now we know why the leadership of our great country can’t BALANCE the BUDGET.
    Basic addition and subtraction is beyond their reach.

  15. rockman on Thu, 6th Nov 2014 12:49 pm 

    Ken – So you think Fox is lying about the statements from the administration? I found the same info on CNN.

    Truly amazing: so to counter the KSA “dumping cheap oil” into the US the govt response will be to increase the price of imported oil by adding a tax. A tax that would be passed along to US consumers. A tax whose intent is to force the KSA to reduce production and thus raise the price of oil. A higher price for the US consumer to pay for all the oil they depend upon both…imported and domestic. If an R administration were to be suggesting it the D’s would immediately demand impeachment for the POTUS for colluding with the fat cats in the oil patch.

    “Now what the U.S. may do is buy crude to offset a price collapse caused by Saudi dumping and support U.S. shale producers.” So again: a D POTUS authorizes a move that increase the cost of oil the US consumers depend upon and sends those monies to the ‘dirty lying bastards” in the oil industry?

    “The Saudis other nightmare is the lifting on the U.S. oil export ban, which already is falling apart. How to define what is crude and what isn’t crude is harder as U.S. shale oil is so light in gravity it floats above the normal West Texas Intermediate scale.” So again I’ll point out that the global consumers don’t buy oil…they buy refined products. And the US is the largest supplier of those products and is already shipping the equivalent of 3 million bbls per day into the global market place. Sending the oil overseas only allows foreign refiners to pocket the profits that are now going to US companies. So in addition to helping the oil producers charge US consumers more the US refiners will be losing revenue to foreign refiners. Which means fewer American jobs and lower stock prices for a group of US companies. So again: this is a D White House backed by a D senate that’s going to push for this plan: lose high salary American jobs and transfer profits from US companies to foreign companies?????

    “If the U.S. government remains silent and uses as a loophole the high quality of oil as not fitting the definition of crude oil it will open up the floodgates and unleash U.S. shale oil into the world.” A tad late for the KSA to worry about this: in the last two years the US has exported at least 30 million bbls of the LTO overseas. And that’s not a part of the roughly 1 BILLION bbls equivalent of refined products we export every 12 months.
    I can’t figure out if these folks are that stupid or if they think they are explaining their plan to someone so ignorant.

  16. God on Thu, 6th Nov 2014 12:52 pm 

    Geico

  17. Northwest Resident on Thu, 6th Nov 2014 12:58 pm 

    “So you think Fox is lying about the statements from the administration?”

    Sometimes they do and sometimes they don’t. It all depends…

  18. ron on Thu, 6th Nov 2014 12:59 pm 

    ghung…we will see if the Fed’s roll over..not role over.

  19. James Oss on Thu, 6th Nov 2014 1:00 pm 

    I get my oil news from John P. Tretbar’s ‘News from the oil patch.’ on KFIX 96.9 FM just before Alice Cooper’s rock show.

  20. Madhatter on Thu, 6th Nov 2014 1:03 pm 

    “many commodes look sick” lol. Was that an intentional play on words or a typo?

  21. Dummer N Abrik on Thu, 6th Nov 2014 1:04 pm 

    BP and BHP Billiton are two very different companies that the writer of this article seems to think are the same company. So which one is it?

    The US currently has about 690 million barrels in the SPR. They plan to take 10 million barrels out and have 590 million remaining. Either someone is skimming off 90 million barrels somewhere- or the writer of this article is a moron.

    It’s really terrible how the average American is paying less at the pump now, isn’t it? Good thing the govt. is allowing foreign companies to sell OUR national resources so their stock holders can make a bigger profit and us average Joes get to pay more at the pump.

  22. Tim on Thu, 6th Nov 2014 1:06 pm 

    “White House was actually looking into reducing the size of SPR, which currently holds about 690 million barrels by about 10 million barrels to about 590 million barrels.”

    I think 690 million minus 10 million equals 680 million not 590 million. Quality writing here!

  23. Rick on Thu, 6th Nov 2014 1:08 pm 

    “…White House was actually looking into reducing the size of SPR, which currently holds about 690 million barrels by about 10 million barrels to about 590 million barrels….” interesting math. Are we talking about 10 million or 100 million? One zero can make a big difference

  24. Gary Anderson on Thu, 6th Nov 2014 1:11 pm 

    Wow, Saudi Arabia is doing the US government’s will, making financial war on Russia. So what if it is an attack on Frackers. Most people don’t like fracking anyway.

    Exporting oil will not make the US independent of other sources of oil, meaning endless war.

  25. Gary Hornung on Thu, 6th Nov 2014 1:13 pm 

    Wouldn’t a drop of 10 million barrels in the SPR amount to 680 million barrels left? “looking into reducing the size of SPR, which currently holds about 690 million barrels by about 10 million barrels to about 590 million barrels.” Just saying, somebody didn’t do the math.

  26. rockman on Thu, 6th Nov 2014 1:14 pm 

    Solo – “…enforce the export ban”. And once again there has never been an effective ban on exporting oil because there has never been a ban on exporting refined products made from oil. Solo: how does it make any difference to you or future generations if we export a bbl of oil or export the refined products made from that bbl of oil? Either way that bbl of oil doesn’t benefit you, your grandchildren, your great-grandchildren, etc.

    I don’t mean to offend but sometimes I feel like I’m talking to a f*cking cat. LOL. What part of exporting the refined products of 1 BILLION BARRELS per year of US oil is difficult to understand?

    That’s about 35% of US oil production that is refined and sent overseas every day. IOW 35% of current US oil production isn’t being consumed by the American people because it’s being refined and shipped overseas. And that doesn’t include the oil that is currently being shipped out of the country. The US currently exports about 137,000 bo per day according to the EIS. IOW we currently export 22X more oil as refined products as we do oil.

    People have their panties twisted into a knot over oil exports when the US is exporting products made from 22 times as much oil. Has everyone lost perspective of what’s really important to the American consumer: REFINED PRODUCTS…not oil.

    For Dog’s sake: I work in the f*cking oil patch: I’m the one that should be clouding the issue and keeping the truth from folks. If the Koch brothers found out I would be dropped from their Christmas card list. LOL.

  27. Carl Larrabee on Thu, 6th Nov 2014 1:31 pm 

    . . . about 690 million barrels by about 10 million barrels to about 590 million barrels.

    2nd paragraph has sentence above. Either going from 690 to 680 or if 690 to 590 should be 100 million barrels vs. 10.

  28. Ken Ralidis on Thu, 6th Nov 2014 1:35 pm 

    This is pure nonsense. There is no oil war, nor is there any incentive for that. The comparisons are pure hyperbole. For instance, the Saudis can produce oil at a far, far lower costs than can US producers, and so their ability to withstand lower oil prices is far higher than that of the US. This article seems to have totally fabricated an “oil war”.

  29. FOG Rider on Thu, 6th Nov 2014 1:37 pm 

    Yes, the US is refining oil and exporting refined product. This is good for the US economy and the trade balance. However, US refiners are set up to refine the heavier crude, not the light tight oil that has increased our production volumes.

    So what is really happening is we buy (import) heavy crude refine it and sell the refined product. We are selling much of the refined product because 1) Refiners can make money doing so; 2) the market for refined products is growing in developing regions, not the US.

    Should we export our condensates, no. We should refine them and sell the refined products which are a higher value end product.

  30. John Venema on Thu, 6th Nov 2014 1:39 pm 

    Who are lower prices bad for? Not for the economy. Maybe it’s bad for oil companies who for years have made record profits – but I think it’s time those of us who paid the high prices have a break for a while.

  31. Rick Tofte on Thu, 6th Nov 2014 1:58 pm 

    Where does the black market ISIS oil play into this? PLENTY but yet
    Notice there is NO mention of the Iraq oil being diverted into “other channels”
    Could it be a ploy to undercut our financial teeter totter? Great. I don’t care as long as the gas is at a realistic price from years ago. We’ll see

  32. ghung on Thu, 6th Nov 2014 1:59 pm 

    Chris Carpenter: “We have enough oil for our grandchildren’s grandchildren.”

    Define “enough”,, and I would love to see the source of your assertion. I’m sure many here would.

  33. ghung on Thu, 6th Nov 2014 2:04 pm 

    ron: “ghung…we will see if the Fed’s roll over..not role over.

    I have a suspicion that Obama may use this as a bargaining chip to get something from a Republican Congress. As Rock mentions, products are already being exported, and Joe Sixpack doesn’t know the difference.

  34. Duude on Thu, 6th Nov 2014 2:07 pm 

    Don’t know why the US govt wouldn’t be stocking up the SPR? China is stocking up but we’re sitting on our butts? Are prices just too low to fill up the SPR? Maybe at $100 a barrel?

  35. Nony on Thu, 6th Nov 2014 2:11 pm 

    Rock: Agreed. the import ban does not benefit consumers because finished products compete in a world market. It just helps refiners (pocketing that WTI-Brent spread) and hurts drillers (losing that spread).

  36. tc bakalla on Thu, 6th Nov 2014 2:16 pm 

    How Stupid the people in Charge must be.
    We should buy every drop of oil Saudi Arabia will sell at that low price and put it into our Reserves. The when the price goes up (as it will) our Government will be sitting on top of a Full Reserve supply.

  37. Dave Putnam on Thu, 6th Nov 2014 2:26 pm 

    Why can’t our Government just stay out of everything rather than put controls on everything, they always destroy the American buying power, the things they should control and took off has really mucked us up. IE: Bell Telephone, Electricity, Cable, Cell phone service.

  38. Ondiek on Thu, 6th Nov 2014 2:29 pm 

    The US will not go after anyone causing a collapse of oil prices because the lower prices are hurting Russia and Putin, sinking the Russian economy. The US believes that the country and oil produces can recover faster that the Russian economy will and that will help keep Putin in check.

  39. ray san on Thu, 6th Nov 2014 2:30 pm 

    it is astounding how much oil is in the ground. we should thank The Good Lord for that. Just to think about how much every day they pull out of the ground and how much they have been doing that for so many years and yet it keeps coming more and more. Thank God for the abundance. And humble yourselves before the end comes. Time is short.

  40. jerry on Thu, 6th Nov 2014 2:46 pm 

    the most important move in policy considering oil future’s. is to stabilizing markets and inventory in the united states. this in effect will also extend policies in the war torn middle east. that should lead to stability and recovery of nations. without the pirating of resources. a double edged sword. shoring up global economies as well, threw reduced energy cost. that put a strangel hold on gross national product, around the world. American shale is a win,win for technology and policy…. in God we trust………

  41. dale maloney on Thu, 6th Nov 2014 3:43 pm 

    let the darn stuff float open market it.
    it was alright when the price goes up, let it come back down to 30 dollars a barrel before putting a price freeze on it. lets get gas and oil down to where we can afford it. oil companies and investors have made trillions of dollars, now its time to give the consumer a break. let the oil drop back down. greedy thieves.

  42. Bath_house_barry on Thu, 6th Nov 2014 3:47 pm 

    I’ve never read so much nonsense and disinformation in my entire life. But what else would you expect from Faux noise?

    Kerry met with Saudi Arabia several weeks ago and told them to dump as much oil on the market as possible to cripple Russia’s economy. End of story? Why else would oil prices fall, after 4 years of raping Americans at the pumps. Because it’s a rigged game with the bath house calling the shots. You can expect to see american boots on the ground in Syria sometime in the future, as part of the Saudi deal……

  43. Mario on Thu, 6th Nov 2014 3:49 pm 

    I dont care what all of those guys or govt say. Let the price of fuel go down furthest. It should cost no more than $2.00 a gallon of regular unleaded gasoline in California at least. Then sell a lot to other countries with hefty profit. They should not impose hefty profits to Americans in America.

  44. Magila G Orilla on Thu, 6th Nov 2014 4:01 pm 

    The ultralight crude they are talking about exporting is not really crude oil. NGL or Natural Gas Liquids are naturally occurring short chain hydrocarbons aromatics and light olefins that are so light you can actually pour them in a gasoline engine and run it with no refining whatsoever. They are also much more valuable as feedstock for plastics and solvent manufacture, and as blend-stock for low octane gasoline that they would never be used in this manner. The argument is that if the law allows the export of gasoline which is chemically almost identical to the NGL why would you need to refine it before you export it? There are in fact plants being built that will perform a single stage separation on NGL, thus “refining” it slightly to comply with the law. The real driver behind the export ban is the thousands of refining jobs in the US that would be undermined by free exports of the raw material this industry depends on. Just like the Canadian and US bans on the export of raw timber the logic that processing your natural resources before you export them is fundamentally sound. I think the administration will wink and allow this because it will ease the export pressure without lifting the ban thus protecting jobs both in E&P and refining.

  45. hvacman on Thu, 6th Nov 2014 4:09 pm 

    There is a delicious irony here. Back in 2012, many Republicans were promising to return us to $2.50 gasoline. Now that it may really be happening (obviously thanks to Newt’s hard work;)Fox suggests low oil price is bad news and blame it on a Saudi plot to destroy the US shale oil industry.

    Clueless is an understatement…

    http://money.cnn.com/2012/02/24/news/economy/gingrich_gas_prices/

  46. Ben on Thu, 6th Nov 2014 4:39 pm 

    So next time someone tells you we have a Market economy you should correct them.
    We have a government controlled economy; not quite central but quick to respond to corporate needs.

  47. dn32844 on Thu, 6th Nov 2014 4:44 pm 

    Are people in this country that stupid to buy these type of garbage of press/media “The U.S. / Saudi war”? Kingdom of Saudi Arabia was created by Anglo/American and its under tutelage of the U.S. at until they have oil. This plot pulled by the Saudis was worked out by Saudis and the U.S. to harm Iran and Russia’s economy and not to fight with the U.S. oil giants.

  48. Steve Haas on Thu, 6th Nov 2014 4:58 pm 

    Thanks Fox News! Thanks for everything you have done to get Sgt. Andrew Tahmooressi released from the Mexican prison. At least there was one Network that would report on this fiasco. More than 100,000 leters per month were written to the Justice Department demanding that they do something about this with not one peep from Holder or the anti American President. At least the American people have one network that doesn’t cow tow to the Communist Party USA.

  49. Bob on Thu, 6th Nov 2014 5:17 pm 

    I don’t think drawing down the SPR a little is going to hurt the Saudis’
    at all. But it’s nice to know the US
    Gov’t supports high oil prices. Confirms
    what I suspected all along.

  50. Louis on Thu, 6th Nov 2014 5:33 pm 

    Well Saudi Arabia, now you know what it feels like to be dipped into your pockets, you have been doing the American people like that for years and years. Now you are not making the money like you were before off of us. Building your Man-Made Islands and buying your Fancy Cars and Building your High Rise Hotels. The Shoe is being worn on the other foot now. I Love It !!!!

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