Do the Saudis still matter?

I do agree that OPEC has lost the dominance it ones enjoyed over the price of oil. I have viewed their meeting and production quotas as non-sense and irrelevant for almost a decade now. The quota is a number nobody sticks to and individual countries do as they please.

US companies are shutting down current and future shale oil and fracking operations by the trainloads right now. They can’t produce a barrel of oil for anywhere near the low costs that the Saudis and others can.

Here’s a good article on it although a bit dated: Which Oil Producing Region Loses the Most From Low Prices?

For an impartial update on oil/gas in US use this gov agency:

About EIA - U.S. Energy Information Administration (EIA) - U.S. Energy Information Administration (EIA)

Latest info on projected production for 2015:

Despite lower crude oil prices, U.S. crude oil production expected to grow in 2015 - Today in Energy - U.S. Energy Information Administration (EIA)

The Saudi’s control the oil market.

They can produce at 6usd a barrel. Most others can’t.

Supply and demand.

Advances in technology have led to increase in supply. There is too much supply in the market but saudi arabia is maintaining production.

Price will continue to fall and then when all the small to medium sized oilers across the world will go bust, saudi will buy the assets and retain control of the entire market.

cheap oil also means people going to be buyying more cars, and less hybrids and teslas

In the end the US may suffer the most from a weak oil price due the much higher production costs.

What made you say if Oil is $20 a barrel it is a recession?

Cheap oil fuels economic growth. No one cares if Oil $20 a barrel, the cheaper the better… Unless you are a small oil driller.

The US and Saudi produce 10m barrels each a day making them the largest oil producers in the world. Since Saudi based Oil has huge American interest let’s just say America controls both demand and supply side.

Does Saudi matter? Yes because the oil is on their land. No because they do what the US says not the other way.

Cheap oil is good for everyone except the oil producers.

Not sure if usa has as much control over saudi arabia as emeraldorc makes out. Oil production is behind recent economic growth in usa. If usa was in control of saudi arabia then they surely would not allow saudi arabia to maintain current production levels?

In order for saudi to remain in control of market it will do as I stated in previous post.

[QUOTE=“emeraldorc;674780”]Cheap oil fuels economic growth. No one cares if Oil $20 a barrel, the cheaper the better… Unless you are a small oil driller.
.[/QUOTE]

Not quite. Pull up a usdrub chart and you’ll see what low oil prices are doing to Russia. Russia budget is getting decimated by oil at these prices and if it continues going down and or stays at these levels into late next year we are going to see a real crisis. Russia doesn’t have much US dollar denominated sovereign debt, but it has a LOT of US dollar denominated corporate debt, meaning corporate defaults especially in their oil industry is going to become a huge issue with contagion implications as European and US creditors will be taking big losses on their books. Oil around $50 to $80 will be the sweet spot where it is cheap enough to stimulate growth while not low enough to cause turmoil. Oil at $20 would cause very acute financial crisis for a few countries which could cause contagion and or lashing out that would cause geo political issues, either of which would cause more harm to global growth then the low oil prices would create.

Another implication of the plummet in oil is the negative affect it has on inflation. For Europe, which is battling off low inflation, oil continuing its fall would increase the possibility of outright deflation… A scenario that the ECB cares DEEPLY about preventing and will likely evoke a monetary policy response.

Russian politicians may be in a tough spot, but Russian exporters to the U.S. are suddenly able to kill everyone on pricing and I doubt they are unhappy with that. One of my American clients is a microscope factory that exports to Russia. They have lost all their Russian business to Russian producers because of dollar strength. Low oil prices give some a loss and others a win.

[QUOTE=“Arbitrager on Acid;674844”]Russian politicians may be in a tough spot, but Russian exporters to the U.S. are suddenly able to kill everyone on pricing and I doubt they are unhappy with that.[/QUOTE]

Yeh… Except the US only imports $27 billion annual from Russia… Which is only 1.2% of the USA’s total annual import figure. Not anywhere near a big enough impact to offset the damage caused by their number one export plummeting like a rock.

Only time will tell how a 50% drop in prices for Russian products sold abroad will effect Russian manufacturers. It may mean a recession overall for Russia, but $20 oil doesn’t mean one for the globe.

[QUOTE=“Arbitrager on Acid;674847”]

Only time will tell how a 50% drop in prices for Russian products sold abroad will effect Russian manufacturers. It may mean a recession overall for Russia, but $20 oil doesn’t mean one for the globe.[/QUOTE]

Nigeria, Iran, Russia, and Venezuela are the most vulnerable of the many countries that rely on oil exports as their primary means for meeting their budgets. Oil goes to $20 and we will see large corporate defaults for sure, which creates a global credit tightening crunch (as what happened with the sub prime mortgage lending crisis of 2008 ) and possibly government defaults (more then likely Venezuela). Iran, Nigeria, and Russia both could foreseeably lash out and cause trouble with their neighbors, which would cause market fear and sour investment mood which, combined with the credit tightening conditions, would be a dramatic negative effect on the global scale.

Norway, Canada and Australia would also get hit hard as well, but these are not “wild child’s” on the geo political stage as, russia and iran are, and the actions they take wouldn’t be un-predictable or market unsettling.

Japan, China, and the USA would be the winners until contagion from the other countries going under would spill over and affect the global credit market.

Well if we are lucky enough that all those politicians could make such mistakes (and I am prone to bet on politicians making big mistakes) then we should see some great opportunities in forex. My guess is under such circumstances as a global recession we would see global QE with central banks printing like mad.

Business Insider reported that UBS has the view that: “[I]a sustained $10 drop in prices will [B]add[/B] about 0.2 percentage points to global GDP[/I]”. I think that such predictions are simply beyond the scope of anyone’s capacity to predict precisely because of the political and social variables that could come into play. For reasons such as this I am trying to adopt an antifragile strategy to engage the forex markets.

[QUOTE=“Arbitrager on Acid;674851”]

Well if we are lucky enough that all those politicians could make such mistakes (and I am prone to bet on politicians making big mistakes) then we should see some great opportunities in forex.[/QUOTE]

Undoubtedly. Volatility should be great this year.

I am trying to not have too many strong opinions when it comes to geo politics but if I recall my time in consulting, most of these smaller commodity producing nations secured 10 year off takes at prices already below market value because Hedgefunds that dealt in physicals and just dealers looked to secure market price or sometimes less for volume. Example in 2004 Gold was trading round about $800, you could secure an offtake to supply gold at between $200 and $600 in the mines for say 2 - 5 years.

In the case of Nigeria and places like that they will only be concerned if Oil slipped under a certain amount because at that point they will loose the offtakes but like any corporation if maginal cost exceeds marginal revenue they will seek to cut costs or close up all together in that event supply gets restricted in the chain effect hence pushing prices back to equillibrium.

Also we will see many countries subsidising producers if they feel the coffers will be affected, the truth is Oil prices can’t stay low forever. There will be some effect in real economies that export but Oil in 2003 was as low as $30. Venezuela, Nigeria all grew at their fastest pace and all the years of high oil prices should mean that investments would have been made into potential technology that would reduce the cost of extraction and distribution not to mention the economies of scale. To think even OPEC producers are lacking will be a mistake.

Conclusion, Russia is suffering because of their actions in Ukraine and sanctions rather than oil prices (not saying that they are not affected). Why are Saudis or Venezuelans not in a recession? I think Oil prices will remain low for some time in the future to aid the economic recovery of many countries including that of oil producers.

If the global society continues to use the same volume of oil but spends less money on it, the effect will be less of a transfer of wealth to oil producers and more buying power available to conduct other activities. Rather than producing just a barrel of oil, the society will produce a barrel of oil [B]and[/B] something else. Don’t fall victim to the broken window fallacy. We must not fail to see the end result of any given event on production and lower oil prices will result in MORE production of other goods. That is not recession, that is economic growth.

Economic growth depends on credit. Many oil producers will default at lower prices which can cause tens if not hundreds of billions of dollars of losses for creditors which will make credit harder to get, slowing down capital investments by companies in every sector, reducing economic growth. You can’t make a blanket statement that extended, extremely low oil prices will be good for the global economy. Has the drop in oil thus far been good for the global economy? Yes. Would an extended drop to $20 be good for the global economy? More then likely not. You have to keep in mind the fact that the oil sector’s boom in the US has played an absolutely critical role in pulling the US out of the economic slump caused by the 2008 recession. Oil at $20 essentially would make all that go away, (as the cheapest shale US shale oil is being produced at a cost of $40) plus the huge investment losses and debt write offs that would follow.


The data never lies. Oil has always been incredibly low during early expansion phases and tends to remain low until the next recession. Energy prices puts pressure on households, while you may be partially right on Russia it is an isolated situation made worse by Western sanctions.

See chart below 1999 - To present Click link for details.

Happy New year

https://www.tradingview.com/x/hELt1TLg/


SAUDI OIL MINISTER: I Don’t Care If Prices Crash To $20 — We’re Not Budging