So it’s been reported that Saudi Arabia fired their oil minister. What does this mean? Is a reduction in pumping coming? Could oil start coming back? Is S.A. tired of losing money? Or is it just a temporary good news article and oil will fall flat again?
. Might have something to do with the following quote… Don’t get your hopes up. “In Saudi Arabia, we recognise that eventually, one of these days, we’re not going to need fossil fuels,” said Naimi at a business and climate conference in Paris on Thursday. “I don’t know when - 2040, 2050 or thereafter. So we have embarked on a program to develop solar energy,” he said in comments reported by the Guardian, Bloomberg and the Financial Times. “Hopefully, one of these days, instead of exporting fossil fuels, we will be exporting gigawatts of electric power.” Naimi also said he did not think that continuing low crude oil prices would make solar power uneconomic: “I believe solar will be even more economic than fossil fuels.” I have some really smart friends working hard to prove him right.
With the help of the government, anything can be cheap! Like it or not, there will always be a need for oil.
Don’t get your hopes up. It’s part of their pivot away from a near complete reliance on oil to fund their country. They intend to diversify as their neighbors have. (Bahrain, Qatar, and UAE). There are several news sources around that go into more detail.
If anything this signals a future many years down the line where the Saudis are even less interested in defending a price point and will let market forces set the price which, of course, means the price of oil will be based on the (lowest) cost of extraction as we have today and not the (high) price from artificial supply constriction we had in the past.
I know they have said they want diversity, but you have to have money to do that. I also know they have cash stashed, but making money helps diversify, losing money and spending money to diversify seems like it could cause trouble.
[QUOTE=KrustySalt;184171]With the help of the government, anything can be cheap! Like it or not, there will always be a need for oil.[/QUOTE]
True. I think around half(?) the oil extracted is used for things other than fuel, like making plastics.
New Saudi minister is believer in reform and low oil price
It was January 2016 and oil prices had crashed to their lowest in more than a decade.
Saudi Arabia’s health minister, Khalid al-Falih, a favourite to take over the oil ministry from his mentor Ali al-Naimi, was not panicking.
Falih told an audience of oil executives, bankers and policymakers at the World Economic Forum in Davos that the world’s top oil exporter might benefit from oil below $30 per barrel.
It could help to speed up reform and restructure the economy, and move Saudi Arabia to a smaller and more effective government and unleash its private sector, he said.
For decades Saudi Arabia, a de facto leader of OPEC, had targeted certain oil price levels. If it did not like the price, it would try to orchestrate a production cut or increase together with its fellow OPEC members.
Things were different this time. For the first time in decades, output cuts were not on the agenda to fix the growing global glut that Saudi Arabia helped create by ramping up supply to drive higher-cost producers such as U.S. shale firms out of the market.
Also for the first time in decades, a royal rather than a non-royal - Deputy Crown Price Mohammed bin Salman - had been appointed a few month earlier to oversee Saudi oil policies and drive the massive change.
Do you not think Prince Mohammed, who is just 30, is doing it all a bit too fast for the generally conservative Saudi society, Falih was asked.
“The Royal Highness is very ambitious where he wants Saudi Arabia to be sooner rather later. I can assure you that everybody who works around him is very excited by his vision and energized by his energy,” Falih told the audience.
“Some people were concerned that we were too slow in the past… As a former runner, I can tell you that it helps to go through sprints at times to develop your muscular strengths. We are accelerating reform.”
The writing was on the wall, said the executives leaving the Davos conference. Falih would soon become oil minister reporting to Prince Mohammed, who is quickly turning into the world’s most powerful oil figure.
Three months later, Prince Mohammed had a chance to showcase his might when he effectively ordered the Saudi delegation led by Naimi not to agree to a global production freeze deal with OPEC and non-OPEC Russia.
Fellow OPEC members accused Naimi, who initially said he liked the deal, of no longer speaking with the voice of authority. Three weeks later on Saturday, Naimi was gone and Falih became energy minister.
“It is an end of an era when Naimi fought hard and struggled to create a price environment which would have been good for both consumers and producers,” said Gary Ross, a veteran OPEC watcher and founder of New York-based consultancy PIRA.
“We are moving to a new era where OPEC will no longer be managing the market while supply and demand will determine the price. The new Saudi oil leadership believes the market will dictate the price and that means higher volatility. We will see higher highs and lower lows,” Ross said.
IMPETUS TO REFORM
Naimi, born in 1935, had orchestrated several OPEC oil output cuts and increases since taking on the oil minister job in 1995.
The former Saudi Aramco’s clerk-turned-chairman saw oil priced as low as $9 per barrel during the Asian financial crisis at the end of 1990s, as high as $147 in 2008 and back to $36 several months later after the collapse of Lehman Brothers.
Rumors about Naimi being finally allowed to retire have been hitting the market periodically in the past four years.
But even though the Riyadh-born and U.S.-educated Falih has long been tipped to replace Naimi, his fortunes and career kept zigzagging from Saudi Aramco’s chairman to health minister until finally securing the job on Saturday - combining energy, industry and mineral resources in a new super ministry.
Falih takes the job in a much better market environment compared to January - oil prices have indeed recovered from their January lows of $27 per barrel to trade at around $45 last week on the prospect that the market has began to rebalance thanks to lower U.S. output.
Born in 1960, Falih joined Aramco in 1979, and went to study engineering at Texas A&M University in 1982 on an Aramco sponsorship program.
Falih probably knows every oil chief executive in the world as he was the key negotiator behind a Saudi initiative to jointly develop gas resources with oil majors in early 2000.
Over the past year, when Naimi was carefully choosing his words or not commenting at all, Falih has become more vocal about his views that the oil market needs to rebalance through low prices and that the Saudis have the resources to wait.
“That doesn’t really point to somebody who would invest a lot of time and energy in trying to reconcile different OPEC members,” said Richard Mallinson from Energy Aspects.
Falih says job creation and economic reforms are top worries for the Saudi government these days, not an obsession with oil price levels.
“Those transitions sometimes takes years, sometimes decades. The current low oil prices will give us an impetus to accelerate this,” Falih said in Davos in January.
(Writing by Dmitry Zhdannikov; Editing by Angus MacSwan)
Saudi Arabia is not losing money on their oil production. They have among, if not THE, lowest production cost in the world on average. They are among the biggest foreign investors in the world, thus making good return on investment if oil prices stays low to support growth in other countries.
Where they loose out is on their budget and thus available capital to develop domestically and invest abroad.
Another less know fact is that associated gas from oil production drive nearly all power stations, all de-desalination plants and is used as feed stock for their Petrochemical industry. They are thus dependent on a certain level of oil production to keep those services running. Where that lower limit lays is a well guarded secret, but it has existed since the late 1970s, when the great “Gas Gathering project” was completed.
The cheap water made by using gas even make them able to grow vegetable in hydroponic farms and even wheat in the dessert, thus not the “food weapon”, threatened by the west during the oil crisis in the earl 1970s is no longer such a big thing: https://en.wikipedia.org/wiki/Agriculture_in_Saudi_Arabia
This may not last though: http://english.alarabiya.net/en/business/economy/2014/12/11/KSA-to-stop-wheat-production-by-2016.html
Maybe they have reached the production floor and are thus unable to just turn on/off the tap to control oil prices?
[QUOTE=ombugge;184188]Saudi Arabia is not losing money on their oil production. They have among, if not THE, lowest production cost in the world on average.[/QUOTE]
It appears that Saudia Arabia could use a higher price (to break even). Oman, Qatar, UAE and Kuwait are looking much better.
Statistics is a wounderful (wonderous) thing.
Here is another table showing cost of production for various contries:
Crude Oil’s Total Cost of Production Impacts Major Oil Producers
By Gordon Kristopher | Jan 13, 2016 10:02 am EDT
Crude oil’s total cost of production
The following chart shows the total cost of producing one barrel of crude oil. The total cost of producing crude oil includes all of the costs from project site plan development to lifting oil from the well. Producing oil costs the most in the United Kingdom. It needs $52 per barrel to meet the total cost of producing one barrel of crude oil. The US needs $36 per barrel to meet the total cost of producing one barrel of crude oil. The high total production cost for crude oil raises questions about US shale operators’ sustainability. To learn more, read US Oil and Gas Companies’ Debt Exceeds $200 Billion.
Crude Oil’s Total Cost of Production Impacts Major Oil Producers
OPEC members with highest total cost of producing crude oil
OPEC (Organization of the Petroleum Exporting Countries) members Nigeria, Libya, and Venezuela have the highest total cost of producing crude oil. The total production cost is at $31.6 per barrel, $23.80 per barrel, and $23.50 per barrel, respectively. However, Saudi Arabia and Kuwait have the lowest total production cost at $10 per barrel and $8.50 per barrel, respectively. In the next part of this series, we’ll discuss the total production cost breakdown and its influence on the oil market.
OPEC and Saudi Arabia adopted the policy of record crude oil production to shut down US shale operators’ business of higher break-even costs and production costs like Whiting Petroleum (WLL), Apache (APA), EOG Resources (EOG), Marathon Oil (MRO), and Continental Resources (CLR). The fall in production from the US will lead to the market share recapturing OPEC again. It led to a tussle between the high-cost operators among OPEC’s members.
Oil-tracking ETFs like the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) are also influenced by lower oil prices. They also impact ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the iShares US Oil & Gas Exploration & Production ETF (IEO)
- Updated - - -
On a happier note:
Will 2017 or 2018 Mark the Return of the Bulls?
By Gordon Kristopher | Jan 13, 2016 10:02 am EDT
Crude oil supply and demand
The EIA (U.S. Energy Information and Administration) published its monthly STEO (Short-Term Energy Outlook) report on January 12, 2016. It reported that the global crude oil production will rise to 95.9 MMbpd (million barrels per day) in 2016 and 96.7 MMbpd in 2017. The global crude oil production was at 95.7 MMbpd of crude oil in 2015. The global oil consumption is expected to average 95.2 MMbpd in 2016 and 96.6 MMbpd in 2017.
Will 2017 or 2018 Mark the Return of the Bulls?
US crude oil production
The EIA reported that US production could fall to 8.7 MMbpd in 2016 and 8.5 MMbpd in 2017. The US produced 9.4 MMbpd of crude oil in 2015. Slowing US production could benefit crude oil prices.
Crude oil supply and demand gap
Slowing US production could narrow the supply and demand gap in 2016 and 2017. However, record production from OPEC and scaling Iran’s production could balance the oil market. How long? The EIA expects the crude oil supply and demand gap to be around 0.8 MMbpd in 2017. Speculation of an improving Chinese economy and improving demand in 2017 are key catalysts for higher oil prices in 2017 and 2018.
Lower oil prices benefit US refiners like Phillips 66 (PSX), Tesoro (TSO), and Valero Energy (VLO). In contrast, higher crude oil prices benefit producers like Anadarko Petroleum (APC), ConocoPhillips (COP), Oasis Petroleum (OAS), and EOG Resources (EOG). Oil producers like Whiting Petroleum (WLL) and Newfield Exploration (NFX) got a credit upgrade from Wells Fargo despite the depressed energy market. These companies would outperform when oil prices rebound.
The volatility in oil prices impacts ETFs and ETNs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the Vanguard Energy ETF (VDE), and the VelocityShares 3x Long Crude Oil ETN (UWTI).
Read the next part of the series for the latest crude oil price forecast.
I would think Venezuela is going to crash and burn soon. How they are managing to keep their head over the water, is a mystery. They barely made money before the crisis.
And who wants to buy the nasty shit they are producing anyway?
[QUOTE=lm1883;184247]They just sold all of their gold and have assassinated an opposition leader, can’t figure they will last much longer.[/QUOTE]
CIA to the rescue?? No. not for the present regime, but any right wing military dictator will do fine.
It appears that Saudia Arabia could use a higher price (to break even). Oman, Qatar, UAE and Kuwait are looking much better.[/QUOTE]
What is shown in the graph you attached is the fiscal break even point for the main oil [U]exporters[/U] in 2014.
Here is the same figures for 2015: http://marketrealist.com/2016/01/whats-break-even-cost-top-oil-exporters/
The FOB cost of oil is a VERY different thing.
Here is a graph that shows those figures for oil [U]producing[/U] countries in 2015: http://marketrealist.com/2016/01/crude-oils-total-cost-production-impacts-major-oil-producers/
You will notice that the production cost for US and Norwegian oil is about the same, although ALL oil production in Norway is from expensive Offshore fields, while a lot of the US production is from conventional onshore fields. Why??
The answer is here: The break even production costs for the various [U]shale oil[/U] producing areas in the US: http://www.rystadenergy.com/AboutUs/NewsCenter/Newsletters/UsArchive/us-q1-2015
The cost of producing deep water fields in the GOM is also higher than present oil price, but not as high as in other DW producing basins: www.mckinsey.com/.../dotcom/.../Oil%20and%20gas/.../MoOGNavigatin…
One more thing that makes a difference is the fluctuation of USD rate to other currencies, which affect those who have large part of their expenses in local currency, while the US oil producers are not, since they pay expenses and get paid in the same currency,USD. (Some are also forced to sell their oil products at artificially low prices on the domestic market. I.e. Venezuela, Saudi Arabia etc.)
The price of oil is also affected by the USD rate, incl. the Brent benchmark crude: http://marketrealist.com/2015/01/strengthening-us-dollar-impacting-crude-oil-prices/
If you read further in this last link there are also a lot of other things that affect the Crude Oil Price and the relative profitability in various producing countries, whether net exporters or importers.
Just in case you mist it, there are some hope. The question is; Will it be 2017, or maybe 2018, before the balance between supply and demand is re-established in the worldwide oil market?: http://marketrealist.com/2016/01/will-2017-2018-mark-return-bulls/
A lot depends on the US situation and policy. If the Shale Oil producers are encouraged to get back in the market at a too early stage, or if the US reserve stocks are kept artificially high, all predictions are off.
Questions: Why would US Politician do a thing like that?? Maybe because low oil prices are good for the broader US economy??
Or could it be because cheap gas at the pumps are good for votes?
The Oil industry and the few 100K people working there are not enough to win elections and that is after all what the great game of politic is all about, isn’t it?
Oh, you thought it had something to do with “serving for the greater good of the people”, or “Government by the people, for the people”?. Great God man, where have you been these last decades, since Roosevelt?
I just ask, otherwise I could be accused of being an anti-American, know-nothing foreigner.
Looking forward to some expert answers from you who live there and “feel the pain” as it where. (Not “the Bern”)
in the US it’s all about what will stimulate profits for the rich the most. Anything else is a side effect. Right now the rich are profiting more with cheap oil in one way or another. They will adjust policy accordingly when the price increases to maximize profits.
“feel the pain” as it where. (Not “the Bern”)
FOR GOD SAKES MAN…HARD TO STARBOARD…HARD TO STARBOARD!!!
Yeah, just like it worked for Murdoch… http://www.encyclopedia-titanica.org/forums/collision-sinking-theories/9591-murdochs-orders-after-sighting-iceberg.html
[QUOTE=Oil_Is_Evil;184296]Yeah, just like it worked for Murdoch… http://www.encyclopedia-titanica.org/forums/collision-sinking-theories/9591-murdochs-orders-after-sighting-iceberg.html[/QUOTE]
We had a Norwegian Pilot onboard once as we were sailing through some Fjords in rough seas. He was too busy telling sea stories when, he looked up and SCREAMED…For GOD SAKES MAN…HARD TO STARBOARD…HARD TO STARBOARD!!! His name happened to be Bernard. No Bullshit True Story!
Reading ombugge rants in this post brought me back to the time. Inside joke…