Three Men Now Control The Price Of Oil

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma. Nick Oxford, Reuters

Julian Lee, World Oil/Bloomberg: The oil price is now controlled by just three men

NEW YORK CITY (Bloomberg) -- OPEC has lost what control of the oil market it ever had. The actions (or tweets) of three men — Presidents Donald Trump and Vladimir Putin and Crown Prince Mohammed Bin Salman — will determine the course of oil prices in 2019 and beyond. But of course they each want different things.

While OPEC struggles to find common purpose, the U.S., Russia and Saudi Arabia dominate global supply. Together they produce more oil than the 15 members of OPEC. All three are pumping at record rates and each could raise output again next year, although they may not all choose to do so.

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WNU Editor: The U.S. oil industry and the companies pursuing new oil extraction technologies have more power than President Trump when it comes to oil prices, or to put it bluntly, they are the ones who are currently driving oil price decisions and strategies.

Are We About To Face An Oil Price Shock?

WNU Editor: If a war breaks out with Iran .... yes .... get ready for an oil price shock. On a side note, here is an interesting read .... The 4 Key Chokepoints For Oil (OilPrice.com).

Oil Headed To $10? If The Answer Is Yes What Will Be The Geopolitical Fall-Out?

Market Watch: Oil headed to $10? China may be in the driver’s seat

So another week begins, and many investors may be wondering how many records will be broken now — at least those that have nothing to do with Mother Nature.

That synchronized global uptrend is looking pretty intact, with almost every major world equity index at or near record highs. Asia has kept that going, and the Dow looks set for a fresh high this morning. Note that it’s been an incredible 236 days since the S&P 500 has had a decline of at least 3%.

This so-called “euphoriameter” says it all:

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WNU Editor: China is spending the money to bust their oil dependence. And if they do succeed in developing viable alternative energy sources .... the benefits will be worldwide .... but with one exception. For all the countries who have grown dependent on oil exports for revenues .... Venezuela, Iran, Saudi Arabia, Iraq, etc. .... it is going to hurt.

U.S. On The Verge of Becoming A Major Oil Exporter In Three Years

CNN: Look out, OPEC! U.S. to become top 10 oil exporter by 2020

U.S. oil production is booming. The next step: conquering the export market.

Increased shale production will transform the U.S. into one of the world's top oil exporters in just a few years, according to a new forecast by the consultancy PIRA Energy Group.
PIRA estimates that American crude exports will grow to 2.25 million barrels a day by 2020, a four-fold increase from 2016.

The boom would put the U.S. in roughly the same league as major oil exporters including the United Arab Emirates and Kuwait.

"In the years ahead, these developments position the U.S. to potentially be one of the 10 largest exporters of crude oil in the world," wrote analyst Jenna Delaney.

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WNU editor: This has geopolitical strategic implications far beyond OPEC. Europe is dependent on energy supplies from Russia .... a dependent and reliable source from the U.S. will be a counterweight to Russia and the "strings" that it puts on its contracts. Then there is Asia .... cheaper oil and energy prices are a Godsend to the growth of their economies.

Who Will Benefit From A Saudi Arabia - Iran War?

An Iranian military fighter plane flies past an oil tanker during naval manoeuvres in the Gulf and Sea of Oman April 5, 2006. REUTERS/Fars News/File Photo

Panos Mourdoukoutas, Forbes: The Coming War Between Saudi Arabia And Iran Will Make American Frackers Very Rich

Saudi Arabia and Iran are moving closer to a direct military confrontation that has the potential to disrupt Middle East oil supplies and push crude oil prices back towards the $60, even $100, level.

That’s a dream scenario for American frackers who will have to pump oil as fast as they can to make up any supply shortfall to America’s allies.

For several years, Saudi Arabia and Iran have been trying to resolve their religious and political differences by fighting proxy wars that had little impact on oil prices. For a simple reason: they didn't want to cause any disruptions in the flow of oil from the Persian Gulf. Besides, Washington has been the de facto guarantor of the free flow of oil from the Gulf to its Asian and European allies.

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WNU Editor: The ones who would benefit .... Russia. Venezuela, Nigeria, Libya, Canada's oil industry, industries in renewal industries, and yes .... American frackers. The ones who would lose .... well .... everyone else.

Are We Seeing The End Of OPEC?

Emile Simpson, Foreign Policy: OPEC Is in its Death Throes

The latest bluster by Saudi Arabia won't scare America’s oil producers – or solve its own existential crisis.

Like the boy who cried wolf, 2016 might become the year of the oil producers’ cartel that cried “output cut.” If that’s right, and the U.S. shale industry becomes the oil market’s marginal producer, Middle Eastern petro-states and, above all, Saudi Arabia are in for lean and hard years ahead.

In February, OPEC called for an oil production “freeze” to raise crude prices in conjunction with Russia. But this effort collapsed at a meeting in Doha, Qatar, in April when Iran refused to join any freeze in order to regain the pre-2012 production levels of close to 4 mbpd it enjoyed before U.S. and European Union nuclear sanctions were imposed, following the removal of certain sanctions after the 2015 nuclear deal. A similar proposal failed at the OPEC meeting in June, again following Iran’s refusal, despite outreach by the Qataris.

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WNU Editor: If mankind has learned one thing in the past century .... it is that developments in technology can be truly revolutionary for change .... and how the old status quo can be easily swept aside. For the oil industry .... better methods of fracking has truly revolutionised oil and natural gas extraction, and the result of it has been a world glut in these energy sources. For OPEC .... that derives its power from limiting energy resources to obtain a price for their resource .... this has been a disaster. My prediction .... fracking is not going away .... and I expect this situation to remain for a very long time.

The Old Oil Order Has Collapsed

Michael Klare, Real Clear World/Tom Dispatch: The Collapse of the Old Oil Order

Sunday, April 17th was the designated moment. The world's leading oil producers were expected to bring fresh discipline to the chaotic petroleum market and spark a return to high prices. Meeting in Doha, the glittering capital of petroleum-rich Qatar, the oil ministers of the Organization of the Petroleum Exporting Countries (OPEC), along with such key non-OPEC producers as Russia and Mexico, were scheduled to ratify a draft agreement obliging them to freeze their oil output at current levels. In anticipation of such a deal, oil prices had begun to creep inexorably upward, from $30 per barrel in mid-January to $43 on the eve of the gathering. But far from restoring the old oil order, the meeting ended in discord, driving prices down again and revealing deep cracks in the ranks of global energy producers.

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WNU Editor: This is telling .... OPEC oil output near record high in April as Iran, Iraq growth offsets outages: Reuters survey (Reuters). Also here .... ExxonMobil profits slide 63% on low oil prices (BBC). We are living in a different time .... and so much for "peak oil".

The Price Of Oil Is Impacting Military Spending

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Irina Slav, OilPrice.com: How The Oil Crisis Has Impacted Military Spending

A report by the Stockholm International Peace Research Institute has revealed that most of the world’s nations hiked their military budgets last year, marking the first increase in spending since the 2008 crisis. It seems that the only ones not taking part in this military spending hike are some of the world’s biggest oil producers.

While the United States is still the country with the largest military budget at $596 billion spent in 2015, this figure was actually a decline on the previous year. Saudi Arabia, according to Bloomberg, would also have cut its military budget if not for the war in Yemen. Russia, the world’s top oil producer, shrank military outlays in 2015 to $66.4 billion.

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WNU Editor: No surprises here. For countries like China, the U.S., Europe .... lower oil prices means more money will now stay at home. For the oil producers .... this means either no money for the military and/or smaller budgets.

Will Saudi Arabia's Oil Policy Result In A Period Of Boom And Bust Cycles For The Foreseeable Future?

A pumpjack brings oil to the surface in the Monterey Shale, California, April 29, 2013. REUTERS/LUCY NICHOLSON

Robert Mosbacher, Foreign Policy: Saudi Arabia’s Destructive Oil Freeze

Riyadh has positioned global oil markets for a never-ending series of boom-and-bust cycles.

At OPEC’s December meeting in Vienna, the delegation from Saudi Arabia ignored the pleas of some of the bloc’s more economically fragile members, whose ranks include Nigeria and Venezuela, to cut output in order to halt the drop in crude oil prices. Instead, the Saudis insisted on maintaining production at its current levels. In the two months that followed, prices of Brent crude oil promptly fell from $40 per barrel to a low of $27 per barrel.

Since then, Saudi Arabia has agreed to “freeze” crude oil production at January levels, in an effort to stabilize global prices. But its strategy of helping drive that price down to $30 per barrel represents a serious miscalculation in its efforts to maintain control of the market. By taking advantage of an economic slowdown — primarily in China, where GDP growth has fallen by 30 percent — and pushing prices so low that very little new exploration makes commercial sense, Riyadh is planting the seeds of the next supply shortage.

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WNU Editor: Booms and busts has always been the history of oil production .... but what is different now is that oil producers are learning to be even more innovative .... Turning to frack tech, stricken U.S. oil drillers test new limits (Reuters).

Is There A U.S. - Saudi Plan To Drive Down The Price of Oil To Destabilize Russia And Iran? And Has It Backfired?

Nick Giambruno, International Man: The Coming Collapse of Saudi Arabia

They met in secret to plan a devastating attack…

Two powerful men, colluding at a palace in the Middle East.

In September 2014, U.S. Secretary of State John Kerry flew to Saudi Arabia. He was there to meet with King Abdullah, the country’s ruler and one of the richest men in the world.

Informed observers say Kerry and Abdullah drew up a plan at this meeting to destroy their common enemies: Russia and Iran.

To carry out the attack, they wouldn’t use fighter jets, tanks and ground troops. They would use a much more powerful weapon…

Oil.

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WNU Editor: I have never been impressed with US Sec. of State John Kerry's strategic thinking on international issues. And while this theory of a U.S. - Saudi secret agreement to drive down the price of oil to destabilize Iran and Russia is interesting .... I am sceptical that they are this dumb to not only plan it .... but to implement it. Russia and Iran know what hardship is .... and they are not afraid to implement economic pain on their population because they know that their citizens will fall in line. But if Saudi Arabia was to implement austerity measures on their population .... I am wiling to bet that they will be facing a lot of unrest.

Hat Tip: Zero Hedge

Is Russia On The Verge Of Controlling The World's Oil Supply?

Russia-Insider

Rakesh Upadhyay, OilPrice.com: Will Russia End Up Controlling 73% of Global Oil Supply?

Russia has played a master stroke in the current oil crisis by taking the lead in forming a new cartel, but it’s a move that could spell geopolitical disaster.

The meeting between Russia, Qatar, Saudi Arabia and Venezuela on 16 February 2016 was the first step. During the next meeting in mid-March, which is with a larger group of participants, if Russia manages to build a consensus—however small—it will further strengthen its leadership position.

Until the current oil crisis, Saudi Arabia called the crude oil price shots; however, its clout has been weakening in the aftermath of the massive price drop with the emergence of US shale. The smaller OPEC nations have been calling for a production cut to support prices, but the last OPEC meeting in December 2015 ended without any agreement.

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WNU Editor: If Putin can pull this off .... I will not be surprised .... I will be shocked .... and I am someone who is rarely shocked when it comes to geopolitics.

The Kremlin's Biggest Fear Is Not What NATO Or The Pentagon May Think, But It Is What U.S. Shale Frackers Arel Doing To Oil Prices

Roughnecks wrestle pipe on a True Company oil drilling rig outside Watford, North Dakota, October 20, 2012. Thousands of people have flooded into North Dakota to work in state's oil drilling boom. Reuters

Mark P. Mills, Manhattan-Institute/Forbes: Russia's Big Worry Is Not What the Pentagon Thinks but What Shale Frackers Will Do to Oil Prices

Secretary of Defense Ashton Carter ruffled feathers this week when, in a February 2nd speech at the Economic Club of Washington D.C., he demoted ISIS and terrorism, to the bottom of a list of key threats to America’s national security. At the top of the list of “five evolving challenges”? Russia.

Right now, though, odds are that Vladimir Putin is more worried about what oilmen like Harold Hamm are thinking than what’s on the SecDef’s mind. Hamm, founder and CEO of Continental Resources, is one of the more outspoken amongst the multitude of shale pioneers who are collectively responsible for the global oil glut — and the consequent price collapse.

We can see what specifically must worry Putin in a new must-read interview with Hamm (courtesy of Christopher Helman at Forbes). Hamm, referencing the fact that American shale producers have in the past half-dozen years nearly doubled America’s oil output, says: “We can double it again.” If Hamm is correct, then the shale fields alone—never mind the rest of America’s onshore and offshore production—would be producing more oil than Russia, and the world markets would again be in oversupply.

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WNU Editor: It is not only Russia that is concerned about the shale fracking revolution to the oil industry, but every OPEC and oil producing county that is dependent on oil exports to finance their governments. And the problem for these oil producers who want higher oil prices .... is that there is nothing that they can do to stop the U.S. oil fracking industry unless they crash oil prices permanently.

The Fall Of The Oil Dictators?

Bill Emmott, Project Syndicate: Oil Dictator Dominos

LONDON – Price movements as large and rapid as those that have upended oil markets since June 2014 are sure to cause pain to some and benefit others. Though the pain tends to capture the most attention, the benefit is just as important – if not more so. The 70% drop in the price of a barrel of crude represents a colossal transfer of $3 trillion in annual income from oil producers to oil consumers.

As a result, while sliding equity markets and a further decline in oil (and other commodity) prices have sparked much talk of another global recession, dire predictions are likely to prove overly gloomy and misdirected. To be sure, the dramatic drop in the price of oil will produce winners and losers. But the biggest dangers will be political, not economic.

The shift in fortunes can perhaps best be seen on the boarding passes of International Monetary Fund officials. Rather than going to Athens, they are now heading for Baku. Indeed, Central Asia’s oil-producing dictatorships, including Azerbaijan, have been among the countries hardest hit by the drop in prices – especially because, as ex-Soviet states, they remain heavily dependent on trade with Russia, another oil producer.

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WNU Editor: There are going to be political changes .... with Venezuela being the first one to fall.

Five Countries Are Now At High Risk Of Unrest Because Of Low Oil Prices

Reuters

FOX News: Oil Plunge Raises Fears of Societal Unrest

With Wall Street shops like Goldman Sachs (GS) and government officials in Venezuela signaling oil could go to the mid-$20 per barrel range next year, analysts at places like RBC Capital Markets have been warning that chronically low oil prices plunging towards seven-year lows means increasing social chaos in countries on the edge—including those battling ISIS.

Five countries are high on the radar screen for societal risks from low oil prices, which RBC Capital Markets has labeled the “Fragile Five.” They are Algeria, Iraq, Libya, Nigeria, and Venezuela. ISIS operatives are believed to be in most of these countries.

Previous Post: Are Low Oil Prices Aggravating Internal Conflicts And Civil Wars?

WNU Editor: Even if oil prices were high .... these countries would be facing unrest.

Are Low Oil Prices Aggravating Internal Conflicts And Civil Wars?

Soldiers guard an oil installation in South Sudan. Africa Arguments

Ryan Opsal, OilPrice.com: Will Low Oil Prices Increase Internal Instability In Conflict Countries?

With over 1.6 million internally displaced in South Sudan, and another 600,000 refugees in neighboring countries, are oil price declines exacerbating humanitarian crises in oil-producing African countries, and can we expect further deterioration as a result of the recent price depression?

This is a worthwhile issue to explore given South Sudan’s overwhelming reliance on oil revenues to fill government coffers; a similar situation that can be duplicated throughout Africa with not only oil, but other commodities exports as well. But, do price changes really exacerbate these conflicts? The answer is: it depends.

WNU Editor: The position that the author in the above post is advocating is that declining oil prices will not impact the civil wars that are happening today in places like South Sudan. That may be the case, but I have to wonder if oil prices were indeed higher, would it make these civil wars worse, or would it force the leaders of these conflicts to come to an agreement.

OPEC Members Are Facing A Cash Crisis

Zero Hedge: Petrostate Cash Crunch Continues Amid Oil Collapse, Proxy Wars

On Friday we noted that Qatar has now followed Saudi Arabia into the debt markets to raise cash amid slumping crude prices. Specifically, Qatar issued some $4 billion in bonds earlier this month - the offering was oversubscribed four times. Central bank Governor Abdullah Bin Saoud Al Thani said simply, “Interest rates are low in Qatar now so we decided it was the right time to issue these bonds and sukuk.”

Indeed, but it’s clearly not all about interest rates although, as we said last month regarding the Saudis’ return to the bond market, there’s something hilariously ironic about the fact that one reason crude prices have remained so low is that ZIRP has kept capital markets open to insolvent US producers allowing them to stay in business longer than they otherwise would have, effectively making the war to maintain market share longer and more painful than the Saudis had figured on, and that, in turn, has now led Gulf states to tap the very same accommodative capital markets that are keeping their US competition in business.

WNU Editor: And it is probably going to get worse .... for OPEC that is.

Saudi Arabia`s Oil Strategy Is Failing

Matt Smith, Fuel Fix: Commentary: Saudi’s targeting of market share does not appear to be working

Thirty-four years ago today, Indiana Jones was the number one movie at the box office with ‘Raiders of The Lost Ark’. 1981 was also the year in which Beyoncé was born. These two reference points are just to highlight how long ago 1981 was (even if a swashbuckling Harrison Ford doesn’t seem that distant a memory). But while the world was a very different place back in 1981, one thing is the same now as it was then: the level of Saudi Arabian oil production.

According to OPEC data, Saudi oil production reached 10.3 million barrels per day in May, a level not seen since 1981. This data point is not all that unsurprising, given recent rumors and murmurs of a ‘price war‘ and the ‘targeting of market share‘ by OPEC’s leading producer.

WNU Editor: What is also raising red flags is the growing realization that the Iranians are about to return (in force) to international oil markets .... Oil market: The Iranians are coming (Al Jazeera).

An Analysis On The Impact Of Falling Oil Prices On Venezuela, Russia, And Iran

Jackson Diehl, Washington Post: Falling oil prices hit Venezuela, Iran and Russia hard

WNU Editor: I am not complaining .... I heat using oil, and I am banking about $250/delivery when compared to last year. But there are geopolitical consequences, and we are seeing that fallout from countries like Russia, Iran, and Venezuela.

More News On The Impact Of Falling Oil Prices

Russia Braces for Widening Deficit as Oil Plunge Starves Budget -- Bloomberg
Moody's downgrades Russia amid oil slide -- Deutsche Welle
Iran sees no OPEC shift toward a cut, says oil industry could withstand $25 crude -- Reuters
Iran Sees ‘No Threat’ from Oil at $25 If Prices Keep Tumbling -- Bloomberg
Iran Blames Oil-Price Plunge for Delay in Saudi Visit -- Bloomberg
Former Saudi oil boss says it can cope with low price. -- BBC
Saudi Arabia can last eight years on low oil prices, says former adviser -- The Guardian
Oil price rout forces Venezuela to rethink petro-diplomacy -- Financial Times
Venezuela, Kuwait assess strategies to increase oil prices -- El Universal
Low Oil Prices Force OPEC Members To Rethink 2015 Budgets -- OilPrice.com
Plunging oil prices hit U.S. offshore drillers -- CBS
World’s Largest Traders Use Offshore Supertankers to Store Oil -- WSJ
Winners and losers in oil's plunge -- Chris Isidore, CNN
Charts: $26 oil unlikely but possible -- Daryl Guppy, CNBC
As oil prices plunge the politics are pivotal -- Michael Levi, Financial Times

This Is Why Saudi Arabia, The United Arab Emirates And Kuwait Decided To Crash The Price Of Oil

Grant Smith, Bloomberg: How OPEC Weaponized the Price of Oil Against U.S. Drillers

WNU Editor: This is one of the best analysis and explanations that I have read on the "how and why" the "rich members" of OPEC decided to crash the price of oil. They have done this before (in 1986) .... and it gave them a significant market share (plus a few trillion dollars) for the next 25 years. This Bloomberg post is a must read. Predictions .... these OPEC countries are not going to relent .... expect hard times in the U.S. oil patch and to those who service them.

Update: Saudi prince: $100-a-barrel oil 'never' again -- USA Today

How Cheap Oil Hurts Russia And OPEC

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Mike Corones, Reuters: Shale industry hedges, OPEC fiddles and Russia squirms

WNU Editor: I am not going to shed any tears for OPEC or Russia.