Saudi's behind oil price fall

[ML]

Saudi Arabia took action to punish both the United States and Russia.  The punishment for USA is to thwart its efforts to gain energy independence via the fracking process and the punishment for Russia is to cripple its revenue stream from oil sales.

Saudi Arabia was particularly angry that America and its Western allies had failed to topple Bashar al-Assad in Syria and they were furious with Russia for blocking initial attempts to oust the Syrian president. The sudden return to market of Algeria, Libya and Iraq meant that OPEC began to overproduce. Under normal circumstances, both this extra production and added capacity from fracking would have prompted the Saudis and their OPEC allies to reduce production to maintain price levels. This year, the Saudis switched tactics and decided to defend their market share no matter where the price went.

Historically the US oil industry and political sphere have been very closely intertwined. By antagonising domestic US oil producers, Saudi Arabia has turned against one of its most established political allies while at the same time trampling on American Energy Independence, a matter of National Security. Lots happen in Washington behind closed doors. The US has always met tough trading conditions with initiative and flair, so expect Washington to change course on its US Foreign Policy towards Saudi Arabia.

http://oil-price.net/en/articles/falling-oil-price-slows-us-fracking.php

[lordtiberius]

They are really made at us for Iran but can't say that.  The Saudis are like 13 year girls.  You can't take anything they say seriously.

[jone]

OPEC, as effective negotiating body, is ruined by this last turn of events.

[Shadow]

For those who like conspiracy theories I would propose the following:

In order to keep OPEC hostage in complying with demands to punish the Russian economy by a low oil price, the IS group has emerged in 2014. As the Middle East needs the US to keep control over the IS and not let it take over a large area, they silently agree to low oil prices.
Now for the IS itself, considering rumoured links of Al Qaeda to secret US groups, IS may just be another group created.

Disclaimer: I do not support this or any similar conspiracy theory.

[lordtiberius]

Lots of conspiracy theories about a plane getting shot down.

"Please forgive us"

[Misha]

I can't see exactly how they are punishing the United States. Will prices, if they hit the $40 mark cripple the nascent fracking industry? Eventually, yes. However, I expect that the American economy will benefit much, much more from low oil prices than whatever may be [temporarily] lost from a dip in domestic oil production....

[Gator]

Read the opening lecture of Natural Resources Economics 101.

This is more about preventing competition and less about politics.

I dismiss Syrian politics  as a factor because if Bashar al-Assad fell today, we know who would fill the vacuum.   

If politics were a motivator, Iran would be the reason (a large, nearby population of Shiites armed with nukes).  Yet don't say this is about Iran...long-term economics is the driver, i. e. curtail the development of fracking. 

[Gator]

I can't see exactly how they are punishing the United States. Will prices, if they hit the $40 mark cripple the nascent fracking industry? Eventually, yes. However, I expect that the American economy will benefit much, much more from low oil prices than whatever may be [temporarily] lost from a dip in domestic oil production....

Just one problem.  If fracking is closed down, OPEC can raise the prices.  And it would take a long time to get fracking up and running again, particularly the development of shale formations in Europe. 

The Saudis have a large rainy day fund and can ride this out.  Maybe $40/bbl, but $50 for a long period will stop the expansion of fracking and maybe close some existing operations.  Meanwhile the world's economy is stimulated by cheaper oil.  Low oil prices are good unless one works in North Dakota. 

[Misha]

Just one problem.  If fracking is closed down, OPEC can raise the prices.  And it would take a long time to get fracking up and running again, particularly the development of shale formations in Europe. 

True, but the research will continue on producing more efficient solar energy, better electric cars, etc... Tesla now has a car that has a range of 245 miles and both VW and I believe Toyota now have hydrogen fuel cell cars. As soon as oil prices start to climb, these new technologies will then serve to brake prices going up too high. Even the Saudis are doing their best to diversify their economy and wean it from oil. If smart, they would be encouraging the development of solar and having their citizens driving electric cars as they risk running out of oil to export if their population continues to grow and consume massive amounts of oil. The Saudis are certainly seeking to benefit as much as they can, while they can, all the while seeking to protect its market share. A much more rational strategy than Russia's for example that is doing its best to drive away reliable consumers of natural gas for example, in the hopes of maybe one day selling large quantities of gas to the Chinese who drive a much harder bargain...

[BillyB]

Saudi Arabia was particularly angry that America and its Western allies had failed to topple Bashar al-Assad in Syria and they were furious with Russia for blocking initial attempts to oust the Syrian president.

Saudi Arabia is unhappy with the way Obama handles foreign affairs but they do have common interests with America and will join us in accomplishing similar goals. Many of you may have forgotten but it was pretty clear when John Kerry visited Saudi Arabia, one of Obama's goals was to get oil prices lowered. The author of your article saying Saudi Arabia is trying to stop fracking is silly. Fracking can be stopped temporarily or slowed but it's not going to be stopped forever so why would Saudi Arabia hurt it's profit margin forever until it runs out of oil in an attempt to do that?


By lowering prices of oil, this will hurt Venezuela, Russia, Iran, and ISIS. It will also stabilize if not help Western economies during these uncertain times and please Obama's voter base, many who want fracking stopped. That is why Kerry was in Saudi Arabia.


Russia can raise prices of oil to retaliate in the ongoing economic warfare with the West. Putin can resort to old fashion war. We have continued to up the sanctions. Russia's economy continues to tank. I don't see sanctions making Putin apologize, returning Crimea, and asking to be let back in Obama's circle of friends any time soon. I don't see Putin and the majority of Russian's allowing sanctions to ruin their lives forever. Something has to give in the next few years.

[jone]

True, but the research will continue on producing more efficient solar energy, better electric cars, etc... Tesla now has a car that has a range of 245 miles and both VW and I believe Toyota now have hydrogen fuel cell cars. As soon as oil prices start to climb, these new technologies will then serve to brake prices going up too high. Even the Saudis are doing their best to diversify their economy and wean it from oil. If smart, they would be encouraging the development of solar and having their citizens driving electric cars as they risk running out of oil to export if their population continues to grow and consume massive amounts of oil. The Saudis are certainly seeking to benefit as much as they can, while they can, all the while seeking to protect its market share. A much more rational strategy than Russia's for example that is doing its best to drive away reliable consumers of natural gas for example, in the hopes of maybe one day selling large quantities of gas to the Chinese who drive a much harder bargain...

Interesting comments.   I watched a special yesterday (it was in Japanese) whereby Hydrogen Stations are popping up in cities across Japan.  Within the next three years, Japan will have Hydrogen Stations supplanting gas stations in all of its major cities.  I'll bet Chevron and Shell aint happy with that!

[Misha]

Interesting comments.   I watched a special yesterday (it was in Japanese) whereby Hydrogen Stations are popping up in cities across Japan.  Within the next three years, Japan will have Hydrogen Stations supplanting gas stations in all of its major cities.  I'll bet Chevron and Shell aint happy with that!

I wouldn't be surprised if Germany followed suit. It would resolve the problem of what to do with excess electricity produced by both solar and wind power (i.e. during the peak summer sunshine and very windy days) as you could use the surplus electricity at peak hours to make hydrogen.