US vs OPEC "Oil War" (trade war)?

[CougarKing]

Perhaps Saudi Arabia can't stop the US from becoming the next energy superpower with the oil fracking boom:

CNBC

What US should do to fight this 'oil war': Insana
CNBC – 22 hours ago

Saudi Arabia, and its fellow members of OPEC, may have just launched an oil war. At the conclusion of its December conference, held in Vienna on Thanksgiving Day, OPEC, led by Saudi Arabia, decided not to cut oil production to halt the better than 30-percent drop in the price of crude oil this year.

For American consumers of energy products, that may very well be the best news of 2014. But the Saudis don't appear to be letting oil prices drop out of the goodness of their hearts. Increasingly, energy experts are saying that the Saudis are using a menacing little maneuver to manipulate the price of crude back up by punishing companies - and countries - mainly the U.S. and its energy industry, by driving prices so low that the recent increases in domestic oil production will be scaled back dramatically as fracking becomes a money-losing endeavor for both marginal and major oil producers in the U.S. Read More Harold Hamm loses $10 billion from oil shock Unlike Russia, or other OPEC members, Saudi Arabia is said to have enough spare change that it can fund its government for several years to come, and, thus, can suffer plunging prices better than other producers.

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OPEC is wrong to think it can outlast U.S. on oil prices
Technology is cheaper and West doesn't use oil to fund a welfare state

By TIM MULLANEY
Published: Dec 2, 2014

Give Saudi Arabia credit: Whoever sets oil-production policy for the desert kingdom has guts. Unfortunately, the sheiks have made what’s likely to become a sucker's bet.

You know this part already, but the 12-nation Organization of the Petroleum Exporting Countries last week declined to cut production, sending Brent crude oil futures tumbling to their cheapest point since 2009. The Saudis appear to be spoiling for a fight, trying to find out exactly how cheap oil must be to force surging U.S. shale-oil production to seize up like an unlubricated engine.

"Naimi declares price war on U.S. shale oil,"
- Reuters headline, referring to Saudi Arabia Oil Minister Ali al-Naimi.

But there are at least three big problems with this strategy.

- 1) North American crude isn't as expensive to produce as it used to be.
- 2) There's more than you think in the pipeline to make it even cheaper.
- 3)   OPEC nations, including Saudi Arabia, have squandered their edge in cheap oil supplies on welfare states rulers can't easily cut back.


In 2012, when U.S. shale burst into public consciousness, common wisdom was that it would cost at least $70 to $75 a barrel to produce. As recently as last week, saying U.S. producers could tolerate $60 oil seemed aggressive.

But data from the state of North Dakota says the average cost per barrel in America's top oil-producing state is only $42 - to make a 10% return for rig owners.

In McKenzie County, which boasts 72 of the state's 188 oil rigs, the average production cost is just $30, the state says. Another 27 rigs are around $29.

That's part of why oil companies aren't cutting capital spending much - and they say they can keep production rising without spending more, by getting more out of wells they have already drilled.

Yes, it costs Saudi Arabia only about $2 a barrel to get crude out of the ground. But analysts insist the Saudis' real pain point is more than $100 a barrel - more than $30 higher than its price now - because of what they do with the money once they have it.

In 2010, the Saudis spent $130 billion to combat the Arab Spring, the Persian Gulf Fund reports. Some of that money went for better education and health care, and a little for infrastructure. Then there was a 15% raise for government employees, higher unemployment benefits, a government-subsidized minimum wage hike and 500,000 new homes in a nation of 28 million people. It cost 30% of Saudi gross domestic product.

Naimi's strategy to squeeze North Dakota and Texas is a bet that in the long run, low prices will force a cut in production and a return to Saudi leverage. But it will be much easier to further trim North American production costs than to convince whole nations to eat less.

OPEC still looks like a late-1990s company caught in Harvard Business School professor Clay Christensen's "Innovator's Dilemma" - so married to once-innovative business models, it couldn't adjust when technology re-engineered their industries.

"Think of the Saudi welfare state as oil's brick-and-mortar stores: integral to an old business model, unsustainable in the new."

Market Watch

 

[Bruce Monkhouse]

I think it's Russia who'll take the brink of this pain................gee, SA and Russia taking it dry.  Awwwwww,......


http://www.thestar.com/business/economy/2014/12/02/sanctions_falling_oil_prices_to_push_russia_into_recession.html
By:  Associated Press,  Published on Tue Dec 02/2014

MOSCOW—The Russian government has acknowledged that the country will fall into recession next year, battered by the combination of Western sanctions and a plunge in the price of its oil exports.
The news caused the stock market to drop and pushed the ruble to a fresh record low against the dollar.

The economic development ministry on Tuesday revised its GDP forecast for 2015 from growth of 1.2 per cent to a drop of 0.8 per cent. Russian households are expected to take hit, with disposable income seen declining by 2.8 per cent against the previously expected 0.4 per cent growth.
Russia’s economic outlook is at the mercy of the global market for oil, a key export that finances the bulk of the state budget. Sanctions over Moscow’s role in eastern Ukraine are making things worse, hurting Russian banks and investment sentiment in particular.

MORE AT LINK

 

[Oldgateboatdriver]

Here's a suggestion for where saudi Arabia can make a cut: Stop financing the Madrassas and financing the export of Wahhabism around the world.

 

[CougarKing]

Saudis Fire Again in Oil War Against U.S. Shale
By Phil Flynn
The Energy Report
Published December 05, 2014

Saudi Arabia launched a third-wave attack this week in its oil price war with the U.S. shale oil producer. First they cut prices, then they refused to cut production, and now they cut prices again.

Oil prices fell Thursday when Saudi Aramco, the state owned oil company, showed no sign of retreat and cut its price on its Arab light to a record low $2.00 discount to the  local benchmark  for customers in  Asia and prices for all grades of crude to U.S. refineries.

They won't surrender because they know that their economic existence may come down to winning this price war, and if you want to know why the Saudis will give you 36.5 billion reasons. That is number of barrels that the Energy Information Administration now says we have in proven oil reserves in the United States, a 9.4% increase and the most amount of oil we have had since 1975. The Saudis realize that as our technology in the U.S. will continue to allow the US to expand the amount of oil that can feasibly get out of the ground, and if they don't try to make that economically more difficult, they will lose their stranglehold on the West as well as the oil global market place.

A beneficiary of the Price War might be "Big Oil". No not including the small shale companies but really "Big Oil." Exxon Mobil’s CEO said that Exxon can afford oil at $40 a barrel. So in other words, like vultures they will be able to swoop up the shale producers that end up going under. 


Fox Business

 

[tomahawk6]

The game is about over for OPEC and they see the hand writing on the wall.Energy independence will be huge for the US.

 

[MAJONES]

I recall reading somewhere that ISIS was funding themselves with oil exports.  I can't help but wonder if this oils price war isn't aimed at taking their financial legs out from under them.  I confess that I don't know how the Saudi Brand of Islam jives with the ISIS brand.

 

[Edward Campbell]

The Saudi brand of islam, the approved brand by the Royal family, is one of a tint handful of such brands that animate most, almost all of the fundamentalist, jihadist sects of Islam. It is based on an old, medieval reading of the texts and refuses to (cannot?) accept the nature of the  modern world.

Stamp out Saudi Arabia ~ completely ~ and islam can star over, in peace.

 

[Colin Parkinson]

Here's a suggestion for where saudi Arabia can make a cut: Stop financing the Madrassas and financing the export of Wahhabism around the world.

A good post and to the point, we will be reaping the spoiled grain they have sowed for many years to come even if the money stopped tomorrow.

 

[cupper]

Some economists are predicting that the World Oil Price Limbo Contest could hit $43 a barrel in 2015.

I don't think that OPEC has had any real relevance for a while now, and the Saudis are just trying to maintain market share at the detriment of all other Cartel members. And their production levels were like highway speed limits anyway, just suggestions rather than hard and fast caps.

 

[CougarKing]

Associated Press

Steep oil plunge slams Russia, Venezuela but US, China other big economies stand to benefit
By Jonathan Fahey, The Associated Press | The Canadian Press – Fri, 19 Dec, 2014

NEW YORK, N.Y. - Oil's plunge is spreading both pain and gain across the globe.

The price of a barrel has fallen by about half since June, punishing the economies of some major exporters. Russia's currency has nose-dived, for instance, and investors worry Venezuela could default on its debt.
For countries that consume a large amount of the world's oil, it's a different story. The world's four biggest economies — U.S., China, Japan and that of the European Union — all benefit from lower oil prices.

"Economically this is a good thing for the U.S., it's a good thing for Europe, it's a good thing for China and it's a good thing for most consumers," says Sarah Ladislaw, director of the energy and national security program at the Center for Strategic and International Studies.

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[Colin Parkinson]

SA will be burning through it's cash reserves with this action and the US can ramp up hale gas at anytime it wants. It would be in Canada's and US interests to help companies involved in this field by giving tax breaks, and investing in improving the technology.

 

[a_majoor]

Burning through cash reserves is a sort of relative term; the Sauds have a war chest of over $700 billion petrodollars, so can afford to stay the course for a while.

What really matters is who will "blink" first: the Iranians certainly don't have the same amount of cash on hand, but Russia has a bigger economy and might be able to hold on long enough for Saudi Arabia to start to worry about how they will subsidize their huge pool of unemployed and unemployable youths.

The United States has a much larger economy compared to Russia, but since they are struggling with a massive debt and spending issue, there are more variables than how much shale gas they can extract.

 

[Rifleman62]

Colin P:

SA will be burning through it's cash reserves with this action and the US can ramp up hale gas at anytime it wants. It would be in Canada's and US interests to help companies involved in this field by giving tax breaks, and investing in improving the technology.

Dream world. Can you imagine the NDP and the Liberals looking at the big picture and agreeing with this? Obama is already at WAR with ALL sources of fossil fuels.

 

[Colin Parkinson]

Which is roughly 3 years worth at their current rates according to this article, which in real terms with some income still coming in likely means 5-6 years.

Partly in response to unrest in the Arab world, Saudi Arabia boosted spending to a record 804 billion riyals ($214 billion) in 2011, 39 percent more than initially planned and 23 percent higher than in 2010, its fastest growth in a decade.

http://www.reuters.com/article/2012/08/07/saudi-imf-idUSL6E8J7ABJ20120807

 

[GAP]

Well, from the little I have heard, which is nothing, at least Russia is not able to hold Europe to ransom with the price of oil this winter....they just get it, at a decent rate, from the Arabs....ahh, gee  ;D

 

[a_majoor]

Amazingly, everyone is racing to produce as much oil as they possibly can. Getting some cash is probably better than getting no cash at all, and we will soon see just where the brewing point is for the high tech oil extraction like fracking and oil sand production as prices sag to $50/barrel. This is causing some very unexpected second and third order effects as well:

http://nextbigfuture.com/2015/01/oil-lowest-price-since-2009-as-russia.html

Oil lowest price since 2009 as Russia Boosts Production and Euro lowest since 2005 on new Greece Crisis Fears

Oil dropped to the lowest in more than five and a half years amid growing supply from Russia and Iraq and signs of manufacturing weakness in Europe and China.

John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “The Chinese and European PMI figures signal weaker demand, while there’s ever-increasing supply. Nobody is cutting back on output and now the Russians are posting post-Soviet production highs.”

West Texas Intermediate for February delivery fell 58 cents, or 1.1 percent, to $52.69 below $50 a barrel on the New York Mercantile Exchange, the lowest close since April 30, 2009. Brent for February settlement dropped 91 cents, or 1.6 percent, to close at $56.42 a barrel on the London-based ICE Futures Europe. It’s the lowest settlement since April 30, 2009.

The euro tumbled to its lowest level against the dollar (US$1.18 = 1 Euro) in nearly nine years on Sunday night amid mounting fears that Greece could exit the eurozone.

The sharp slide came as Asian markets accelerated a sell-off sparked on Friday, when Mario Draghi gave his strongest hint ever that the European Central Bank was ready to launch quantitative easing to tackle the threat of deflation.

Fears in Europe are growing that a lurch to the left in Greece could bring about a dramatic shift in the government's attitude towards its creditors.

Georg Streiter, a spokesman for Mrs Merkel, refused to comment on reports that she believes the eurozone is now robust enough to cope with the potential exit of Greece should the looming general election in Greece reignite the eurozone crisis.

Greece's economy remains nearly 25% smaller than it was in 2008, and has the highest debt mountain in the euro-area. The country’s unemployment rate is currently 25.6%

 

[CougarKing]

The Saudis slashing oil prices nearly everywhere...

Reuters

Saudi slashes monthly oil prices to Europe; trims U.S., ups Asia

NEW YORK (Reuters) - Saudi Arabia made deep cuts to its monthly oil prices for European buyers on Monday, a move some analysts said reflects the kingdom's deepening defense of market share, although it also hiked prices in Asia from record lows.

State oil firm Saudi Aramco cut the official selling price (OSP) for its Arab Light crude to Northwest Europe, a region that buys only a small proportion of Saudi Arabia's crude, by $1.50 a barrel for February, putting it at a discount of $4.65 a barrel to the Brent Weighted Average (BWAVE), the lowest since 2009.

However, Aramco also raised its February price for its Arab Light grade for customers for Asia - the largest of its major markets, accounting for more than half of its exported crude - by 60 cents a barrel versus January to a discount of $1.40 a barrel to the Oman/Dubai average.

The $2 discount to Asia in January was the largest in records going back more than a decade, but traders had been expecting Aramco to hike prices by at least 20 to 30 cents due to the narrowing spread in the Dubai market.

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[CougarKing]

Our part in this showdown:

Yahoo Finance/Reuters

High Noon on the Gulf Coast: Canada, Saudi oil set for showdown

NEW YORK (Reuters) - As a test of wills between OPEC nations and U.S. shale drillers fuels a global oil market slump, a brewing battle between Canadian and Saudi Arabia heavy crudes for America's Gulf Coast refinery market threatens to drive prices even lower.
While the stand-off between the oil cartel and U.S. producers of light, sweet shale oil has captured the limelight in recent months, the clash over heavier grades - playing out in the shadowy, opaque physical market - may put even more pressure on global prices that have halved since mid-2014.

Two factors will come into play over the next few weeks: From the North, new oil pipelines will pump record volumes of Canadian crude to the southern refineries, many better equipped to process heavy crudes than lighter shale oil.

From the Middle East, top exporter Saudi Arabia is offering crude at discounted prices in an attempt to defend its remaining share of the important regional market, which has shrunk by more than half in recent months.

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[jollyjacktar]

There seems to be a problem with the thought of Keystone going through at the moment.

Shared under the fair dealing provisions of the copyright act.

CBC Story Link

[size=14pt]Keystone bill would be vetoed by Obama, White House says

[/size]Republican-controlled U.S. Congress eager to flex muscles on energy file

By Pete Evans, CBC News Posted: Jan 06, 2015 12:56 PM ET| Last Updated: Jan 06, 2015 5:14 PM ET

The White House says U.S. President Barack Obama would veto any legislation that tries to fast-track the Keystone XL project even as Republican lawmakers tabled a bill that would do just that in Washington today.

White House press secretary Josh Earnest said he does not expect Obama would sign any legislation that reaches his desk that would unilaterally approve the project, a 1,900-kilometre pipeline that would bring 800,000 barrels of Canadian crude oil to U.S. refineries every day.

The project has been in the works for six years since it was originally pitched in 2008 by Calgary-based TransCanada Pipelines Ltd., which reiterated its commitment to the project on Tuesday, even amid a huge drop in the price of oil that potentially changes the economics somewhat.

Impact of cheap oil

"Keystone XL is a project that was needed when oil prices were less than $40 in 2008 when we first made our application, more than $100 last year, or $50 today," CEO Russ Girling said in a statement.

Girling's statement said his company has been diligent in its effort to comply with "every twist and turn in this unparalleled process." 
"To be clear, this is just a pipeline," Girling said. "Not the first. Not the last – just a safe and reliable pipeline that delivers energy Americans need. It's time to make a decision."

The White House made the veto declaration on the same day that a newly minted Republican-controlled Congress was ramping up its attempts to move the project forward by tabling a bill in the U.S. Senate to OK the project. Republicans picked up nine seats in the midterm elections, so supporters say they had 63 votes in favour of the bill, enough to overcome a filibuster but not a presidential veto — which would require 67.

As mandated by the Constitution, the U.S. Senate resumed sitting at noon on Tuesday. One of the first items on the agenda is a bill, sponsored by Alaska Republican Senator Lisa Murkowski, 53 other Republicans and six Democrats, that would effectively take the issue out of the State Department's jurisdiction.

The Senate bill is identical to one that fell a single vote shy of passage in November, when Democrats controlled the Senate and Senator Mary Landrieu of Louisiana, a Democrat, pushed for a vote to save her Senate seat. She ended up losing her seat to a Republican.

The lower House of Representatives is expected to vote on the bill and pass it on Friday, while the Senate bill seems destined to wind its way through a Byzantine process of riders, which means it would land on the president's desk some time after that.  Indeed, some lawmakers who oppose the project in broad strokes could possibly be brought around to supporting it with some amendments.

In a letter to Democrats from their leadership obtained by the AP, Senator Chuck Schumer of New York and Senator Debbie Stabenow of Michigan said the Keystone bill was "the first opportunity to demonstrate that we will be united, energetic, and effective in offering amendments that create a clear contrast with the Republican majority."

Among the ideas suggested in the letter were measures to prohibit exporting the oil abroad, to ensure American iron, steel and other goods were used in the pipeline's construction and to match every job created by the pipeline with an investment in clean energy.

"There's a lot we can get done together if the president puts his famous pen to use signing bills rather than vetoing legislation his liberal allies don't like," Republican Senate majority leader Mitch McConnell said late last year.

A presidential veto is no trifling matter. In his six years in office, Obama has only vetoed two other bills. His predecessor George W. Bush used a veto 12 times, while Bill Clinton did so 37 times during his eight-year presidency.

A statement from the office of Canada’s Natural Resources Minister Greg Rickford said his government believes the project has support from the public and should be approved.

The project will create jobs on both sides of the border, the statement said, and "the [U.S.] State Department itself has indicated it can be developed in an environmentally sustainable manner."


"Right now this is not a debate between Canada and the U.S., it's a debate between the president and the American people, who are overwhelmingly supportive of the project, and we're not going to comment on the American political process," the statement from Rickford’s office said.
With files from The Associated Press

 

[CougarKing]

Never again? Or so what just one Saudi prince says.

Market Watch

Oil above $100? Never again, says Saudi Prince Alwaleed

Updated to reflect comments from Saudi Prince al-Waleed made to CNBC on Friday Jan. 23

NEW YORK (MarketWatch) — A well-known Saudi prince is making a big call on oil, saying that the $100-a-barrel threshold will never be topped again.

“If supply stays where it is, and demand remains weak, you better believe [the price of oil] is gonna go down more. But if some supply is taken off the market, and there is some growth in demand, prices may go up. But I’m sure we’re never going to see $100 anymore,” said Prince Alwaleed bin Talal, the billionaire Saudi businessman, in an interview with Maria Bartiromo of Fox Business Network published in USA Today.

Alwaleed reiterated those remarks in an t.v. interview with CNBC on Friday, adding that, he sees crude-oil prices under pressure for the “foreseeable future.”

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