Black Mamba1
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Observing recent world affairs including Iran deal, I was always thinking about US policy shift towards Saudi. The detail analysis of the main reason is here. n Its a unresolvable conflict of interest between Saudi & US. I think distance between the two nations will increase henceforth. It is related to the existence of Saudi and its establishment. The article is too long . Posting important part only. Interested friends can read the full article-
HOUSTON — He’d spent years touting his vision that America would one day dominate one of the world’s most powerful markets. And when Harold Hamm, a pioneer in discovering vast reserves of shale oil under American soil, took the stage in front of several hundred oil luminaries, he never acknowledged that the narrative was in doubt.
“For the next 50 years, we can expect to reap the benefits of the shale revolution,” Hamm said one day this spring. “It’s the biggest thing that ever happened to America.”
But away from the stage, the U.S. oil industry — and Hamm — was in crisis.
In the previous six months, Hamm, founder of oil giant Continental Resources, had lost $6.5 billion, more than one-third of his net worth. The industry that Hamm had helped create was facing its greatest test in a frantic race to stay profitable as rival Saudi Arabia worked to drive down oil prices and, according to some analysts, undermine America’s oil industry at the most important moment in its history.
Behind the low price of a gallon of gas at the pump this summer lies a competition worth trillions of dollars and which is capable of swinging the geopolitical balance of power. On one side are Hamm, a famous wildcatter, and other American oilmen who rode the discovery of hydraulic fracturing to tens of billions of dollars of wealth and a promise of, in Hamm’s words, ending the “disastrous” days of Saudi Arabian control. On the other are the Saudis and their allies in the Organization of the Petroleum Exporting Countries, which are trying to stem rising U.S. oil power and maintain their 40 years of dominance.
On Tuesday, the cost of West Texas Intermediate oil, a U.S. benchmark, fell to $52.11 a barrel -- down from a peak of nearly $110. Meanwhile, the number operating oil rigs in the country has fallen to just 645. That was lowest rig count in almost five years, down from more than 1,500 a year ago. OPEC said last month that it would continue to pump 30 million barrels a day, despite low prices, sending a strong signal to U.S. competitors that it had no plans to let up the pressure on the Americans.
And now there is a new pressure on the scene. The decision to strike a nuclear agreement with Iran, which has more oil reserves than all but three OPEC countries, will, over the coming months, unleash new Iranian oil into the markets. Analysts expect Iran to pump 1 million or more barrels a day as a result, so the prospect of the deal has been driving prices down in recent weeks — by about 15 percent — interrupting a stabilizing in the price of oil since the big plunge last year.
Even before the Iran news, the clash between the U.S. and Saudi Arabian energy interests had created a volatile new force in the global economy and unprecedented challenges for the two largest producers. The Saudis need high prices to fund their nation but have lost control of the market because of the oil boom in the world’s largest economy. The United States, after years of easy growth, is grappling with painful adjustments — including tens of thousands of layoffs — with the hope of staying viable amid the price collapse.
At stake is not just the price of filling up a car but America’s energy independence and one of its most vibrant industries. The fallout will ultimately determine whether cheap oil is a mere blip or will continue for years.
In the past, when oil prices fell, the Saudis and other oil-rich states would step in, pulling back on production and letting prices rise. But this time, the price fell in part because of the substantial increase in U.S. energy production. Instead of acting to shore up the market, the Saudis increased drilling themselves, sending oil prices plunging and threatening U.S. drillers who rely on oil prices being high.
“For the last 20 or 30 years, it was almost like OPEC could flip the switch and change things as they wanted,” said Mike Terry, president of the Oklahoma Independent Petroleum Association and an acquaintance of Hamm’s. “Well, they don’t have that power anymore.”
A Saudi force
In Houston, at the same conference Hamm attended, hosted by consulting firm IHS, an Aramco oil executive made clear that the Saudis, with many advantages over the Americans, were not going to let up during a downturn. Pulling up logos of fallen American companies on the screen — Kodak, Polaroid, Compaq — Muhammad Saggaf warned: “If we look back, we will see history littered with examples of successful companies that were at the front of the race but in a very short period were relegated to the back ... because their competitors won the innovation race.”
During the decades of Saudi dominance, crude prices stayed low, but spiked mightily during wars in the Middle East and oil embargoes. More recently, prices reached a new plateau above $100 a barrel given the demand for energy from China and India. All the while, U.S. fracking companies improved their technology to harness oil from regions that were never thought to offer much in the way of energy.
Eventually, amid a slowing economy and a growing awareness that U.S. oil discoveries were enough to make America energy independent — and potentially even an exporter of petroleum — prices began a steady decline. Then, in late November, for the first time, Saudi Arabia embarked on a new strategy, refusing to cut production to prop up prices. That decision turned a gradual price decline into a free fall.
The Saudis were influenced by a bitter memory from the mid-1980s, when declining global demand had led to a similar oil glut. To try to keep prices stable, the Saudis went from producing 10 million to about 2 million barrels per day. Its customers flocked to other OPEC nations, and the Saudis fought for years to get them back.
“We learned from that mistake,” Ali al-Naimi, the nation’s oil minister, said at a March conference in Berlin. “Today, it is not the role of Saudi Arabia, or certain other OPEC nations, to subsidize higher-cost producers by ceding market share.”
Aramco declined to comment for this story.
Some experts also say that the Saudis are hoping to cut off the fracking boom at its knees. If they’d allowed prices to stay high, U.S. production would have continued to grow rapidly.
“And they'd be asked to cut again and again, losing market share,” said Jamie Webster, a global oil markets analyst at IHS.
But the choice isn’t simple for Saudi Arabia, which grappling with a leadership change and a military conflict with neighboring Yemen. Despite decades of attempts to diversify the economy, oil revenues essentially subsidize the state.
Sustained lower oil prices will “put the Kingdom’s savings from earlier oil revenue booms at risk of depletion,” Khalid A. Alsweilem, a former investment director at the Saudi Arabia Monetary Agency, wrote in a recent report published by Harvard University’s Kennedy School.
HOUSTON — He’d spent years touting his vision that America would one day dominate one of the world’s most powerful markets. And when Harold Hamm, a pioneer in discovering vast reserves of shale oil under American soil, took the stage in front of several hundred oil luminaries, he never acknowledged that the narrative was in doubt.
“For the next 50 years, we can expect to reap the benefits of the shale revolution,” Hamm said one day this spring. “It’s the biggest thing that ever happened to America.”
But away from the stage, the U.S. oil industry — and Hamm — was in crisis.
In the previous six months, Hamm, founder of oil giant Continental Resources, had lost $6.5 billion, more than one-third of his net worth. The industry that Hamm had helped create was facing its greatest test in a frantic race to stay profitable as rival Saudi Arabia worked to drive down oil prices and, according to some analysts, undermine America’s oil industry at the most important moment in its history.
Behind the low price of a gallon of gas at the pump this summer lies a competition worth trillions of dollars and which is capable of swinging the geopolitical balance of power. On one side are Hamm, a famous wildcatter, and other American oilmen who rode the discovery of hydraulic fracturing to tens of billions of dollars of wealth and a promise of, in Hamm’s words, ending the “disastrous” days of Saudi Arabian control. On the other are the Saudis and their allies in the Organization of the Petroleum Exporting Countries, which are trying to stem rising U.S. oil power and maintain their 40 years of dominance.
On Tuesday, the cost of West Texas Intermediate oil, a U.S. benchmark, fell to $52.11 a barrel -- down from a peak of nearly $110. Meanwhile, the number operating oil rigs in the country has fallen to just 645. That was lowest rig count in almost five years, down from more than 1,500 a year ago. OPEC said last month that it would continue to pump 30 million barrels a day, despite low prices, sending a strong signal to U.S. competitors that it had no plans to let up the pressure on the Americans.
And now there is a new pressure on the scene. The decision to strike a nuclear agreement with Iran, which has more oil reserves than all but three OPEC countries, will, over the coming months, unleash new Iranian oil into the markets. Analysts expect Iran to pump 1 million or more barrels a day as a result, so the prospect of the deal has been driving prices down in recent weeks — by about 15 percent — interrupting a stabilizing in the price of oil since the big plunge last year.
Even before the Iran news, the clash between the U.S. and Saudi Arabian energy interests had created a volatile new force in the global economy and unprecedented challenges for the two largest producers. The Saudis need high prices to fund their nation but have lost control of the market because of the oil boom in the world’s largest economy. The United States, after years of easy growth, is grappling with painful adjustments — including tens of thousands of layoffs — with the hope of staying viable amid the price collapse.
At stake is not just the price of filling up a car but America’s energy independence and one of its most vibrant industries. The fallout will ultimately determine whether cheap oil is a mere blip or will continue for years.
In the past, when oil prices fell, the Saudis and other oil-rich states would step in, pulling back on production and letting prices rise. But this time, the price fell in part because of the substantial increase in U.S. energy production. Instead of acting to shore up the market, the Saudis increased drilling themselves, sending oil prices plunging and threatening U.S. drillers who rely on oil prices being high.
“For the last 20 or 30 years, it was almost like OPEC could flip the switch and change things as they wanted,” said Mike Terry, president of the Oklahoma Independent Petroleum Association and an acquaintance of Hamm’s. “Well, they don’t have that power anymore.”
A Saudi force
In Houston, at the same conference Hamm attended, hosted by consulting firm IHS, an Aramco oil executive made clear that the Saudis, with many advantages over the Americans, were not going to let up during a downturn. Pulling up logos of fallen American companies on the screen — Kodak, Polaroid, Compaq — Muhammad Saggaf warned: “If we look back, we will see history littered with examples of successful companies that were at the front of the race but in a very short period were relegated to the back ... because their competitors won the innovation race.”
During the decades of Saudi dominance, crude prices stayed low, but spiked mightily during wars in the Middle East and oil embargoes. More recently, prices reached a new plateau above $100 a barrel given the demand for energy from China and India. All the while, U.S. fracking companies improved their technology to harness oil from regions that were never thought to offer much in the way of energy.
Eventually, amid a slowing economy and a growing awareness that U.S. oil discoveries were enough to make America energy independent — and potentially even an exporter of petroleum — prices began a steady decline. Then, in late November, for the first time, Saudi Arabia embarked on a new strategy, refusing to cut production to prop up prices. That decision turned a gradual price decline into a free fall.
The Saudis were influenced by a bitter memory from the mid-1980s, when declining global demand had led to a similar oil glut. To try to keep prices stable, the Saudis went from producing 10 million to about 2 million barrels per day. Its customers flocked to other OPEC nations, and the Saudis fought for years to get them back.
“We learned from that mistake,” Ali al-Naimi, the nation’s oil minister, said at a March conference in Berlin. “Today, it is not the role of Saudi Arabia, or certain other OPEC nations, to subsidize higher-cost producers by ceding market share.”
Aramco declined to comment for this story.
Some experts also say that the Saudis are hoping to cut off the fracking boom at its knees. If they’d allowed prices to stay high, U.S. production would have continued to grow rapidly.
“And they'd be asked to cut again and again, losing market share,” said Jamie Webster, a global oil markets analyst at IHS.
But the choice isn’t simple for Saudi Arabia, which grappling with a leadership change and a military conflict with neighboring Yemen. Despite decades of attempts to diversify the economy, oil revenues essentially subsidize the state.
Sustained lower oil prices will “put the Kingdom’s savings from earlier oil revenue booms at risk of depletion,” Khalid A. Alsweilem, a former investment director at the Saudi Arabia Monetary Agency, wrote in a recent report published by Harvard University’s Kennedy School.
