Saudi Arabia to lower oil prices, the houston boom is over

Saudi didn't "cut prices". They maintained their output. The alternative was to lower their output so America could gain more market share while they lost their own.

Beyond that, lower oil prices are absolutely in US national interests. It has driven 3 of our 4 key antagonizers into a very bad situation (Iran, Venezuela, Russia). Its taken huge amounts of money out of the Middle East - putting pressure on the primary source of funding of terrorism. It's given a huge boost to the American economy.

For long-term energy independence, the US will need to continue to diversify its energy sources and continue to work to get shale costs lower. There's absolutely no reason to artificially raise an input cost of virtually every business and consumer in the country.

 

that mustang in the standard picture looks sweet

 

But Major!

Think about Dave 78's bonus!

How will he live!?!

 

Well how low does crude go next month? That is one ugly, ugly monthly chart.

I didn't think there was a chance it could go to $40, but now I'm starting to wonder if that is only a matter of time.

Nat gas is in breakdown mode too.

 

The Saudi's control the prices, they could buy and sell futures at $20 for years if they want. They have always before controlled the price to surf the spot between maximum return per barrel and stifling the world economy. But now they have chosen to keep up production and take less. Why? Why would they devalue their only resource and limit their long term income when they are sitting on trillions of accumulated wealth?

Somewhere back we listed maybe 10 reasons for them to do it but the real effect for the US is to hook us back on their supply. And if we are hooked on it, we will retain the uneasy alliance with them where we are there army and navy, protecting their interest. They couldn't buy that with all the money they will ever have.

 

omg stop with the saudi price control stuff. this is getting beyond silly.

 

So that OPEC meeting on November 27 didn't help like I'd hoped it would. No cuts to oil production means we're going to see even lower prices. I'm not surprised because I don't know why OPEC would just give up some market share to the US at this point, but I was hoping. Still, I see a cut in OPEC production in 2015.

 

No offense, but I don't think you understand how oil prices work. Saudis, and OPEC in general, only control prices to the extent that they control production. The only way for them to raise the price is to reduce supply. And that makes no sense for them when there are increasing alternative non-OPEC suppliers because now they would lose market share.

 

Even with a reduction in rig count and total number of wells drilled in the US, production will continue to rise due to the massive completion backlog many companies have. Considering that Libya production is rather erratic I think it's safe to say that there has been an unprecedented increase in US oil production. A lot of new pipeline capacity is being brought in line along with some reversals to fuel the decline in prices.

 

I originally thought 45/47 for wti. But now I'm thinking low 40s

 

If you own a large percentage of the oil, own a large percentage of the 'speculators' and hell, even own the banks and clearinghouses, you can set the price of oil. If you want prices to go up, you bid higher on the futures and just leave the oil in the ground (shut down the valve). If you are the buyer, the seller, the clearinghouse and the bank, it costs you nothing. If you want it to go down, make and accept one low bid and everyone else will be happy to pay that price.

It's just like specialist in the stock market only these specialist own the company too.

You know the Saudi's are hedged against oil too. For the last 50 years they have been investing oil profits in other businesses around the world, businesses that rise in value when the price of oil goes down. They have the best PHD's money can buy plugging all this data into algorithms that project their overall value strategies, they aren't just pawns to the whims of the oil market.

 

None of what you posted has basis in reality.....that said I'll bite on the specialist part. What were you trying to say with that? Are you saying specialists would manipulate stocks up and down? Do you know what a specialist's job was? Are you trying to say the Saudis are like NYSE specialists?

 

1. The Saudi's don't control enough oil to do that. They produce about 13% of the world output. Russia produces more. They are being destroyed by this - why can't they just manipulate the price the other way if it were so easy? http://en.wikipedia.org/wiki/List_of_countries_by_oil_production

2. Are you suggesting Saudi Arabia controls the speculators, banks, and clearinghouses?

Why not go with the logical KISS result? US output is dramatically rising and there's now a supply glut. People expected OPEC to reduce output to counter it as they have in the past, but they didn't this time because they didn't want to cede market share to other countries (never an option in the past before shale oil). Thus, prices dropped.

 

BWAAAHAHAHA I just read this gem

Yeah bruh the Saudis want $50 oil. This has long been part of their master plan!

 

I don't doubt that there is a tipping point in the total equation so that +/-$50 oil actually maximizes the total value of their portfolio of worldwide and varied investments. You know there is a reason they don't just shut down the taps.

I'm not talking that I 'know' anything, just that it is possible, more so than general public knowledge thinks; that 'free' markets are controlled behind the scenes by players with the means to do so. Just look at the bank's manipulation of the Libor. Bank interest rates are probably the biggest determinant of wealth flows in the world and it was completely calculated by a handful of bank officers.

You don't have to control all the oil, you just have to control enough of it and have enough cash that you can bid or accept futures contracts at the rate or trending direction that you want. Once someone starts accepting bids of $50 on a significant % of oil, no one will be offering $60. Once the only world supplier that can vary it's output at will refuses $50 and accepts a $60 bid (from one of it's own agents even) no one is going to accept $50.

 

This is a pretty good example of game theory. The best strategy would be for all the suppliers to lower their quantity to increase overall profits. However the the dominant strategy for any one player is to try to keep production high since if they lower production and other keep production high then it is bad for them.

However Saudi can single handily change the price of oil if they wished too. Currently world consumption is 91.44m bbl/d and word production is 91.96m bbl/d. If Saudi was going to cut back production the rest of OPEC would follow suit. They are 30% of the world supply. If they cut back supply 3m bbl/day that would drastically shoot up prices.You can look up historical figure to verify this for you self.

Saudi has a plan. They want to keep prices low for the time being. Who cares about market share. No network effect involved here oil is oil. There is no benefit of market share. It should be about profits. Profits would be higher at lower production and I am sure Saudi knows this. They have some sort of longer term plan. It might be to send a message. It might be a signal to investors saying hey we are going to randomly crash the price of oil so you better not invest in such projects. Maybe its shot at Iran or Russia.

 

I agree with all of that. I'm not arguing against the idea that Saudi is responsible for the oil drop or that they didn't do it intentionally. That's all absolutely true - they know what they are doing. They are putting immense pressure on their biggest regional rival (Iran) and it's benefactor (Russia). It slows the development of its biggest global oil competition (US shale). And despite that, it brings them closer to the US because of all the geopolitical and economic benefits we get out of the deal - it wouldn't surprise me if their decision was made with backend discussions with the US. And they have the reserves to survive lower price without a problem.

I'm just arguing that the price drop is the result of their supply decision, as opposed to some kind of oil market manipulation using fake bidders and buyers and things like that. They can jack with global oil prices simply by dictating OPEC production. There's no need for a more complex or manipulative explanation.

 

Not fake, just owned and directed. If you knew you were going to lower the price oil, knew, would you hedge with shorts prior to it becoming common knowledge? You could crush mid-size US producers and make money doing it.

There is no SEC investigating world markets.

 

US Shale is overhyped, well production falls 60% year over year from new wells on average. This shale boom is not going to last very long. Saudi's concern in the long term is not US production.

Low oil prices works in Saudi's favor in a number of ways. Firstly it tarnishes the image of $100+/barrel oil prices which reduces investments. With demand expected to increase in the long term they need investments to remain low. There is specific year over year expenditure requirement to meet future demand, it is now not going to be met with $50-60/barrel oil prices. Secondly, Iran and Russia thing is very real, the US and Saudi are very close allies no matter what you might be told. This works for both of them to a tee.

The market share concern is bs, the lowest cost of production is in Saudi ($4 to 6/barrel and no nonconventional production comes close to this), they could capture the market whenever they want as they have already done by selling below market prices to the US and China. Though this is their way of price manipulation rather than a strategic market share move.

 

I stopped reading there. Son you have a lot to learn.

Saudi's gravy train has gotten clobbered by increased supply of oil. They have unruly masses at home that they have to pay off through social spending so they somewhat behave. Yes they have low extraction costs, but they still would prefer to sell their output for $100 vs. $50/bbl.

OPEC is in danger of falling apart, largely due to the new technology advances of shale oil and fracking. In oil industry economics, what happens on the margin matters a lot, even if it shale oil doesn't make up a large overall percentage of the world's oil supply.