Has Saudi Arabia declared "Oil Price War"?

[rmi5]

Can you find more up to date figures on Russian oil production? The article you provided is dated
11/20/2012... hardly relevant today.

Their production changes depending on different months, ... but, for the last 2-3 years, their average of oil production per year, has been close or a little bit higher than KSA. The difference is that their internal oil demands is higher than KSA, and also the cost of oil production per barrel is very expensive in Russia.

 

[rmi5]

No matter what Saudi Arabia's motivation is (kill fracking, kill Iran, gain market share, etc.), G-d bless them (heh, how the tide turns), because this is the equivalent of a gigantic tax cut that will stimulate the oil-consuming economies while simultaneously depriving the bad actors of the world the cash they need for their troublemaking (let alone bolstering their own authoritarian regimes).

Best of all, with Saudi's low debt levels and built up reserves, this price war can last a long, long time.

I agree, the shale oil production is on an increasing trend, and the world economic growth is not that much big, since the industrialized countries have very low GDP growth rates, and China's GDP growth rate is also on a decreasing trend. That's why I said Saudis do not want to lose their share of market, since if you decrease your production, gaining this share of yours in future would be really difficult in this condition.

 

[AZADPAKISTAN2009]

The oil should never have been inflated to such a high rate for past 15 years OPEC countries made a killing past 15 years

 

[Chinese-Dragon]

Shale is an interesting issue.

China for example has the largest Shale Gas reserves in the world (by far). And the 3rd largest Shale Oil reserves as well. That's in addition to our regular oil and natural gas (we are the 5th largest regular oil producer in the world).

But it will take us around 10-20 years to extract it on a truly large scale. We are extracting quite a lot of shale already, but not enough to satisfy our internal demand.

 

[rmi5]

@New tolid e naft e iran, hodoud 4.2-4.4 million barrel boud ke 1.8 million daakhel e iran masraf mishod. alaan tolid, dar hodoud e 3 million barrel hast, ke 0.9-1.2, depending on different months, saaderat misheh, va baghiyeh daakhel masraf misheh. in kaahesh e tolid e Iran, hich ta'siri, hattaa 5% ham dar gheymat e jahaaniye naft nadaare

 

[al-Hasani]

Shale is an interesting issue.

China for example has the largest Shale Gas reserves in the world (by far). And the 3rd largest Shale Oil reserves as well. That's in addition to our regular oil and natural gas (we are the 5th largest regular oil producer in the world).

But it will take us around 10-20 years to extract it on a truly large scale. We are extracting quite a lot of shale already, but not enough to satisfy our internal demand.

The HUGE advantage that KSA and other GCC states have is that our populations in total do not extend 60 million people thus we have a much bigger leverage when it comes to export. A country like China for instance would always need to look first at their own local consumption and as more Chinese people become more wealthy on a yearly basis the internal consumption will only grow. You have 1.2 billion potential car owners and consumers!

The US almost 350 million!

It's the same with the US who are using more oil and gas than anyone else. I don't see that changing.

In mid-March 2013, The Saudi Minister of Petroleum and Mineral Resources Ali Naimi gave an estimate of over 600 trillion cubic feet of unconventional gas reserves, more than double its proven conventional reserves. That estimate would put Saudi Arabia fifth in a 32-country shale gas reserves ranking compiled for the U.S. Energy Information Administration.

Shale gas by country - Wikipedia, the free encyclopedia

I also know that little of KSA is explored and in such a long future the GCC might have united into 1 federal state so take the reserves of all the other GCC states into account as well.

 

[Chinese-Dragon]

The HUGE advantage that KSA and other GCC states have is that our populations in total do not extend 60 million people thus we have a much bigger leverage when it comes to export. A country like China for instance would always need to look first at their own local consumption and as more Chinese people become more wealthy on a yearly average the internal consumption will only grow.

It's the same with the US who are using more oil and gas than anyone else. I don't see that changing.

In mid-March 2013, The Saudi Minister of Petroleum and Mineral Resources Ali Naimi gave an estimate of over 600 trillion cubic feet of unconventional gas reserves, more than double its proven conventional reserves. That estimate would put Saudi Arabia fifth in a 32-country shale gas reserves ranking compiled for the U.S. Energy Information Administration.

Shale gas by country - Wikipedia, the free encyclopedia

I also know that little of KSA is explored.

You're right, all of our resources are already being maximized to satisfy internal demand.

But our overall energy consumption (currently number 1) is going to be even more huge in the future. So no doubt we will still need to import a lot of energy from overseas.

 

[al-Hasani]

You're right, all of our resources are already being maximized to satisfy internal demand.

But our overall energy consumption (currently number 1) is going to be even more huge in the future. So no doubt we will still need to import a lot of energy from overseas.

Anything else would be strange. It's the same in KSA. Oil is literary cheaper than water.

Anyway without further technological development, the shale oil and gas revolution could be a passing trend that simply delays the search and development of alternative fuels that stem climate change as I wrote earlier. The world is seriously in dire need of finding alternative energy (look at the climate changes) sources and I am pleased that KSA and the GCC as a whole is investing heavily in nuclear energy, solar and wind energy etc. But again the costs and technology is still somewhat in its infancy. I am here talking about solar energy.

The world's resources can simply not sustain the rapid increase of the human population and us consuming more energy than ever. Which will only be an increasing trend as it looks now as most of the human population is severely underdeveloped. Unless we make technological advances.

 

[xyxmt]

US govt knows how to manage , US and Brits own all middle eastern oil companies. Caltex,Mobile,Texaco,Amoco etc etc.....and also banks who wheel n deal with transactions.

sometime we over simplify things too much.

 

[al-Hasani]

sometime we over simplify things too much.

@HAIDER is wrong as well.

Saudi Aramco is a 100% state-owned company. Around 90% of the workforce is Saudi Arabian and 9 out of 12 members of the board of directors are Saudi Arabians.

KSA has its own stock market. That recently opened up to the outside world.

 

[HAIDER]

sometime we over simplify things too much.

Well we all have same source of information and all speculations on the basis of provided source.The winner who's speculation close to final verdict / judgement.
BP/Amoco own by US investor and this company started from Indiana, USA and its headquarter is in Chicago,IL. Your are talking about Amoco suadi segment. its just one segment of the company. It is operating over 20 countries . They have suadi investor in that company, who are board of director.

 

[xyxmt]

few points to ponder

why would Saudis want to drop price of oil, if they are trying to hurt Russia or Iran or even want to eliminate shale producers then they will have to keep producing more oil from here to infinity in order to hurt Iran or Russia.

Wouldnt this also hurt Saudis, although production cost is less for Saudis but going from x barrels to Y barrels must have some extra costs associated to it and all this extra cost for lesser profits due to lower oil prices.

In my opinion this is to discourage finding the alternate sources of energy. This is what hurts Saudis the most not the lower oil prices. Most Japanese auto manufecturere are coming out with hydrogen cell models this year and although prices are high now but it will eventually come down if those cars get some popularity. The only thing that can discourage people from buy those is lower oil prices.

 

[HAIDER]

few points to ponder

why would Saudis want to drop price of oil, if they are trying to hurt Russia or Iran or even want to eliminate shale producers then they will have to keep producing more oil from here to infinity in order to hurt Iran or Russia.

Wouldnt this also hurt Saudis, although production cost is less for Saudis but going from x barrels to Y barrels must have some extra costs associated to it and all this extra cost for lesser profits due to lower oil prices.

In my opinion this is to discourage finding the alternate sources of energy. This is what hurts Saudis the most not the lower oil prices. Most Japanese auto manufecturere are coming out with hydrogen cell models this year and although prices are high now but it will eventually come down if those cars get some popularity. The only thing that can discourage people from buy those is lower oil prices.

Food for thought,

CEIC Macro Watch: Saudi Arabia has successfully been reducing its public debt burden owing to rising oil prices throughout the past three years.

Public debt reached USD 36 billion (6.1% of GDP) at the end of 2011, down from USD 60 billion (15.9% of GDP) two years earlier. Moreover, the International Monetary Fund estimates that the public debt-to-GDP ratio declined further in 2012 to 5.5%, and will keep declining during the next five years. Significant GDP growth is contributing to the debt-to-GDP contraction.

However, if Saudi Arabia cuts its oil production or if oil prices fall sharply in the medium term as expected by the IMF and many experts, will Saudi Arabia still be able to maintain this prosperity taking into account that oil revenues represent some 42% of GDP and 92% of budget revenues?

- See more at: Saudi Arabia Reducing Its Debt Burden, But Is It Sustainable? | CEIC

Read between the line it was already expected in 2012 , that price of oil will fall sharply in future.

 

[SvenSvensonov]

However, the sharp declines also create an opportunity.

"We recently moved from an underweight to a neutral weight rating in energy, so directionally we agree with the idea that this weakness is a buying opportunity, but it is very hard to tell where the bottom is," said Tony Roth, chief investment officer at Wilmington Trust in Wilmington, Delaware.

"Crude seems to have no floor right now, and we could easily see the price drop into the low $60s."

With the big stock price drops, others see a run to consolidation. The sector subindex is down 12 percent in 2014, with year-to-date losses of more than 20 percent in seven companies.

"I think we’ll see some healthy consolidation take place," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

"Some may wither on the vine, but technology has improved to make it profitable to extract at a lower price point than last year. As a result, we’ll probably see some opportunistic buying."

Jacobsen and Krosby said the slide in oil prices and the sector's shares does not mean the boom in the energy sector in the United States is ending, but will likely enter a new stage of development.

"The renaissance isn't over," said Jacobsen. "It's just maturing."

*A reminder of the US shale situation... this is nowhere near the end of US shale.

As energy shares tumble, opportunity lurks| Reuters

 

[anonymus]

I agree, Sven. Per your post and @lavenge lavenge's post earlier, fracking cannot be destroyed, only delayed (and even then, at extreme pain for the traditional producers). The bigger picture, of course, is that it has become a buyer's market, and once again OPEC has broken its own back (just like it did with the oil embargoes of the 70s) through shortsightedness and lack of understanding of market dynamics. Too many misunderstood our emphasis on fracking: the truth is that fracking is important to the US only insofar as it controls oil prices, not out of the mercantilist ego that drives some others. No big deal if fracking is put into mothballs, so long as oil prices are low.

No matter what Saudi Arabia's motivation is (kill fracking, kill Iran, gain market share, etc.), G-d bless them (heh, how the tide turns), because this is the equivalent of a gigantic tax cut that will stimulate the oil-consuming economies while simultaneously depriving the bad actors of the world the cash they need for their troublemaking (let alone bolstering their own authoritarian regimes).

Best of all, with Saudi's low debt levels and built up reserves, this price war can last a long, long time.

@LeveragedBuyout @SvenSvensonov


I think low prices would hurt Shale production in following ways

1. In short term, it may lead to closing down of Shale wells or may lead to bankrupting of investors, though i doubt that latter is possible as any competent investor would protect his Shale oil investment by buying options for low Oil price.

2.It would discourage further investment in Shale. As @SvenSvensonov has pointed out, Shale prices are decreasing due to technology innovation.But if Shale stops making profit, those technological improvements would cease for the lack of investment.This would mean that Shale would not have the same technological edge as it would have had Oil prices remained high ,when Oil prices rise after two years.

3.If Shale close down/drop down, it would require some time in order to even come at full production let alone, account for increased consumption that would have occurred in meantime.

4.Saudis by driving Shale out of production would be showing their economic muscle thus spooking investors that any investment in Shale would be unsafe.

5.Decrease in Oil prices would increase production costs. Production costs not only depends on technological cost of fracking, it also depends upon cost of raising capital. If investment in Shale is seen as risky and/or unstable, it would increase borrowing cost of shale producers as interests would rise since investors would need to recoup their investment in short time.

6. It may also be a ploy to increase demand. Demand of Oil is not elastic.Once increased, it is very difficult to be scaled back as most of infrastructure to consume Oil is in place.

I may be reading this wrong but Saudi intention does not seem to be that of kill Shale but harm it to the extent that it would take some time to recover thus allowing Saudis to enjoy relatively high Oil price ( though not vulgar high) for longer time period and to preempt any further technological advancement in Shale technology.Even Saudi would become irrelevant if production cost of Shale fall below $30 per barrel.


7. Opec may have been spooked by increase in popularity of renewables. Personally i believe that Oil driven growth is an abomination, and economy should go green for sustainability of planet, but at same time i am aware of the fact that it would take anywhere between 20 to 80 years for solar and fusion power respectively to become competitive, Thus in the meantime we have to make peace with Hydrocarbon based growth; but if low Oil prices start hurting research in solar energy ( low prices would not hurt fusion, as all of research is funded by governments and even that as international consortium ), taxes on Oil should be raised to offset price drop.

,BTW You should post more on economics. You are most economically literate member on this forum.

few points to ponder

why would Saudis want to drop price of oil, if they are trying to hurt Russia or Iran or even want to eliminate shale producers then they will have to keep producing more oil from here to infinity in order to hurt Iran or Russia.

Wouldnt this also hurt Saudis, although production cost is less for Saudis but going from x barrels to Y barrels must have some extra costs associated to it and all this extra cost for lesser profits due to lower oil prices.

In my opinion this is to discourage finding the alternate sources of energy. This is what hurts Saudis the most not the lower oil prices. Most Japanese auto manufecturere are coming out with hydrogen cell models this year and although prices are high now but it will eventually come down if those cars get some popularity. The only thing that can discourage people from buy those is lower oil prices.

In mid-March 2013, The Saudi Minister of Petroleum and Mineral Resources Ali Naimi gave an estimate of over 600 trillion cubic feet of unconventional gas reserves, more than double its proven conventional reserves. That estimate would put Saudi Arabia fifth in a 32-country shale gas reserves ranking compiled for the U.S. Energy Information Administration.

Shale gas by country - Wikipedia, the free encyclopedia

I also know that little of KSA is explored and in such a long future the GCC might have united into 1 federal state so take the reserves of all the other GCC states into account as well.

@al-Hasani Shale reserves of Saudi Arabia are immaterial. If you want to raise production, you could simple pump more conventional oil. Shale oil would always remain more costly then conventional to produce.

Your country is curtailing output in order to keep Oil prices high. Exploiting Shale is counterintutive for Saudi Arabia as if it want to pump more Oil, it could simply increase production of conventional crude.