U.S. Shale is giving OPEC Fits

[86Hawkeye]

"The cartel is next scheduled to meet in June, but all signs point to continued inaction as the group battles for its share of an oversupplied market. Meanwhile, U.S. companies will continue to find ways to bring down their own costs. We've said it before, but it bears repeating: bet against American innovation at your own peril."



Article

 

[naturalmwa]

 

[86Hawkeye]

Price wars are generally good for consumers

 

[INXS83]

Ok, the price of crude is back well under $50. When are gas prices going to point back down around $2 again? Any refineries explode or down for repairs lately?

 

[dandh]

Originally posted by INXS83:

Ok, the price of crude is back well under $50. When are gas prices going to point back down around $2 again? Any refineries explode or down for repairs lately?

There's been a large-scale strike at many US refineries for some time now, which is partially responsible for the separation between the price of oil and the cost of gasoline.





This post was edited on 3/17 12:58 PM by dandh

 

[joelbc1]

86...
I hope you are quick enough to understand that the ARABS ad not American shale producers hold the trump cards here. Countless rigs in Texas and ND have shut down since the price of crude has fallen since last Fall. IF the Arabs would decide to cut back their production, supplies would fall and prices would begin to rise...and jobs would return to North America and its shale. However, if the SArabs keeps producing...and recent indications are that the Iranians are going to INCREASE their production 8%, world crude prices will remain low, which is good for the consumer b ut not so good for the producers of shale oil.

 

[naturalmwa]

Originally posted by joelbc1:
86...
I hope you are quick enough to understand that the ARABS ad not American shale producers hold the trump cards here. Countless rigs in Texas and ND have shut down since the price of crude has fallen since last Fall. IF the Arabs would decide to cut back their production, supplies would fall and prices would begin to rise...and jobs would return to North America and its shale. However, if the SArabs keeps producing...and recent indications are that the Iranians are going to INCREASE their production 8%, world crude prices will remain low, which is good for the consumer b ut not so good for the producers of shale oil.

Shale subsidies anyone?

 

[What Would Jesus Do?]

Originally posted by joelbc1:
86...
I hope you are quick enough to understand that the ARABS ad not American shale producers hold the trump cards here. Countless rigs in Texas and ND have shut down since the price of crude has fallen since last Fall. IF the Arabs would decide to cut back their production, supplies would fall and prices would begin to rise...and jobs would return to North America and its shale. However, if the SArabs keeps producing...and recent indications are that the Iranians are going to INCREASE their production 8%, world crude prices will remain low, which is good for the consumer b ut not so good for the producers of shale oil.

Some people are also missing the point that the US benefits in other ways from low prices. Outside the US, who gets hurt? Russia, Iran, Venezuela. Low prices also keep Mexico and Iraq from getting too frisky. Oil-poor allies - like Germany - benefit.

The main negative I see from these artificially lowered prices is that it tends to put green industries and alternative energy sources behind the eight ball - financially and politically.

While the strikes may have some modest propping-up effect on gas prices, I suspect the main reason we don't see deeper cuts is that we have is strong collusion among oil companies. Why cut the price the full amount when customers are happy with a smaller cut? It's not like subtle price fixing will ever get prosecuted in America again. What regulations there are won't be enforced or strengthened or funded.

More profit (from rigged gas prices) not only feels good in the bank account, it funds anti-climate-change propaganda. Which is a good investment because they haven't sold down their fossil fuel reserves enough yet to be willing to invest heavily in alternatives.

Your points about hiring and shale extraction going up if prices go up are correct. But only to a point. These price cuts haven't just caused Big Oil to shutter a few facilities and lay off easily-rehired workers. They have also caused some new companies and investments to fail. It may be easy to rehire workers and reopen wells and refineries, but it's a lot harder to get investors to pony up more money that could be lost if the Saudis pull the rug out again.

Which is to say that the Saudis could play yo-yo with shale and green and other competitors. Make prices plunge, drive new competitors out of business. Let prices rise, lure them back in. Pull the rug out again, make investors lose more. Let prices rise again, pull the rug again, and over and over. How many cycles before investors won't take the bait? Not many, I'd guess. At which point, SA can let prices go up again and just rake in the money - with the challenge from shale and green alternatives crippled for a while. They can keep doing this for as long as they have the easiest-to-extract oil in the world and as long as governments don't put a stop to it. And since even the Exxons and shale companies don't want the government involved, the Saudis can keep playing this game.

 

[Pepperman]

Originally posted by What Would Jesus Do?:

Some people are also missing the point that the US benefits in other ways from low prices. Outside the US, who gets hurt? Russia, Iran, Venezuela. Low prices also keep Mexico and Iraq from getting too frisky. Oil-poor allies - like Germany - benefit.

The main negative I see from these artificially lowered prices is that it tends to put green industries and alternative energy sources behind the eight ball - financially and politically.

While the strikes may have some modest propping-up effect on gas prices, I suspect the main reason we don't see deeper cuts is that we have is strong collusion among oil companies. Why cut the price the full amount when customers are happy with a smaller cut? It's not like subtle price fixing will ever get prosecuted in America again. What regulations there are won't be enforced or strengthened or funded.

More profit (from rigged gas prices) not only feels good in the bank account, it funds anti-climate-change propaganda. Which is a good investment because they haven't sold down their fossil fuel reserves enough yet to be willing to invest heavily in alternatives.

Your points about hiring and shale extraction going up if prices go up are correct. But only to a point. These price cuts haven't just caused Big Oil to shutter a few facilities and lay off easily-rehired workers. They have also caused some new companies and investments to fail. It may be easy to rehire workers and reopen wells and refineries, but it's a lot harder to get investors to pony up more money that could be lost if the Saudis pull the rug out again.

Which is to say that the Saudis could play yo-yo with shale and green and other competitors. Make prices plunge, drive new competitors out of business. Let prices rise, lure them back in. Pull the rug out again, make investors lose more. Let prices rise again, pull the rug again, and over and over. How many cycles before investors won't take the bait? Not many, I'd guess. At which point, SA can let prices go up again and just rake in the money - with the challenge from shale and green alternatives crippled for a while. They can keep doing this for as long as they have the easiest-to-extract oil in the world and as long as governments don't put a stop to it. And since even the Exxons and shale companies don't want the government involved, the Saudis can keep playing this game.

You make both good points and bad (or at least wild-ass conspiracy / guess) ones.

As for the last part, the Saudis' budget actually needs $84 or so to break even. No cause for alarm in the near-term as they can fill the budget hole by selling some investments and / or issuing debt. But they certainly don't want to do that forever, so it would be hard to continually squash competitors.

 

[What Would Jesus Do?]

Originally posted by Pepperman:

Originally posted by What Would Jesus Do?:

Some people are also missing the point that the US benefits in other ways from low prices. Outside the US, who gets hurt? Russia, Iran, Venezuela. Low prices also keep Mexico and Iraq from getting too frisky. Oil-poor allies - like Germany - benefit.

The main negative I see from these artificially lowered prices is that it tends to put green industries and alternative energy sources behind the eight ball - financially and politically.

While the strikes may have some modest propping-up effect on gas prices, I suspect the main reason we don't see deeper cuts is that we have is strong collusion among oil companies. Why cut the price the full amount when customers are happy with a smaller cut? It's not like subtle price fixing will ever get prosecuted in America again. What regulations there are won't be enforced or strengthened or funded.

More profit (from rigged gas prices) not only feels good in the bank account, it funds anti-climate-change propaganda. Which is a good investment because they haven't sold down their fossil fuel reserves enough yet to be willing to invest heavily in alternatives.

Your points about hiring and shale extraction going up if prices go up are correct. But only to a point. These price cuts haven't just caused Big Oil to shutter a few facilities and lay off easily-rehired workers. They have also caused some new companies and investments to fail. It may be easy to rehire workers and reopen wells and refineries, but it's a lot harder to get investors to pony up more money that could be lost if the Saudis pull the rug out again.

Which is to say that the Saudis could play yo-yo with shale and green and other competitors. Make prices plunge, drive new competitors out of business. Let prices rise, lure them back in. Pull the rug out again, make investors lose more. Let prices rise again, pull the rug again, and over and over. How many cycles before investors won't take the bait? Not many, I'd guess. At which point, SA can let prices go up again and just rake in the money - with the challenge from shale and green alternatives crippled for a while. They can keep doing this for as long as they have the easiest-to-extract oil in the world and as long as governments don't put a stop to it. And since even the Exxons and shale companies don't want the government involved, the Saudis can keep playing this game.

You make both good points and bad (or at least wild-ass conspiracy / guess) ones.

As for the last part, the Saudis' budget actually needs $84 or so to break even. No cause for alarm in the near-term as they can fill the budget hole by selling some investments and / or issuing debt. But they certainly don't want to do that forever, so it would be hard to continually squash competitors.

By all means point out the bad and wild-ass conspiracy comments. And explain where I am wrong.

I'd be interested in knowing where your break-even number is from for the Saudis. It's been a while since I've heard that number and then it was something like $29. Early in Bush's first term, I think. The last time I heard the number for Venezuela it was $70. Chavez was still alive, so it's probably somewhat higher now. But what I'm pretty confident about is that the Saudi break-even is well below the Venezuela break-even. Or pretty much any other oil country's break-even. Which is why Saudi Arabia can play these games.

Even if they do have to sell at or below their cost, they are this era's robber barons and they can do it for longer than their competitors can afford to match them.

This post was edited on 3/17 11:57 AM by What Would Jesus Do?

 

[86Hawkeye]

Originally posted by naturalmwa:

Originally posted by joelbc1:
86...
I hope you are quick enough to understand that the ARABS ad not American shale producers hold the trump cards here. Countless rigs in Texas and ND have shut down since the price of crude has fallen since last Fall. IF the Arabs would decide to cut back their production, supplies would fall and prices would begin to rise...and jobs would return to North America and its shale. However, if the SArabs keeps producing...and recent indications are that the Iranians are going to INCREASE their production 8%, world crude prices will remain low, which is good for the consumer b ut not so good for the producers of shale oil.

Shale subsidies anyone?

No.

Certainly, shale will have to compete to become more cost efficient, and I have no doubt that American shale producers will do it.

In the meantime, the Arabs are still producing because they lose more money by cutting production (at least SA does).

SA can weather the storm, as they have a wealth fund that they can tap for about 20 years at current prices. The rest of them are screwed for the time being, which is just fine with me.

 

[Pepperman]

Here is a link from a January WSJ article on breakeven points. Venezuela is way high now... this actually has Saudi Arabia at $104, but I have been told it is more like $80-85.

As to what I disagree with, this topic came up time after time during the "Bush years". Gasoline retailers do not make that much money from selling you gasoline. Sure, right now the spreads are in their favor, but that is cyclical and everybody knows it. Gasoline is a publicly-traded commodity so if you think you can be a retailer and make a lot of money doing so, you are free to start a business right now and do it.

http://graphics.wsj.com/oil-producers-break-even-prices/

 

[joelbc1]

Originally posted by naturalmwa:

Originally posted by joelbc1:
86...
I hope you are quick enough to understand that the ARABS ad not American shale producers hold the trump cards here. Countless rigs in Texas and ND have shut down since the price of crude has fallen since last Fall. IF the Arabs would decide to cut back their production, supplies would fall and prices would begin to rise...and jobs would return to North America and its shale. However, if the SArabs keeps producing...and recent indications are that the Iranians are going to INCREASE their production 8%, world crude prices will remain low, which is good for the consumer b ut not so good for the producers of shale oil.

Shale subsidies anyone?

Not for me...but I'm not a big monied, oil-family Texas Republican with 25 Senators and 200 Congressman in my back pocket, either.

 

[Arbitr8]

Originally posted by INXS83:

Ok, the price of crude is back well under $50. When are gas prices going to point back down around $2 again? Any refineries explode or down for repairs lately?

The price of gasoline would be much much lower than it is now if the current regime would allow the construction of more refineries. Fact is the liberals want the price of fuel upwards of $10.00 per gallon to force people to hitchhike or ride bikes.

Sarah Palin was spot on when she said, drill baby drill all the while Obama and his ilk kept saying more availability (drilling) will not affect the price of gas.


Once again Berries and his bunch were wrong.

 

[What Would Jesus Do?]

Originally posted by Pepperman:
Here is a link from a January WSJ article on breakeven points. Venezuela is way high now... this actually has Saudi Arabia at $104, but I have been told it is more like $80-85.

As to what I disagree with, this topic came up time after time during the "Bush years". Gasoline retailers do not make that much money from selling you gasoline. Sure, right now the spreads are in their favor, but that is cyclical and everybody knows it. Gasoline is a publicly-traded commodity so if you think you can be a retailer and make a lot of money doing so, you are free to start a business right now and do it.

We aren't talking about gasoline retailers.

 

[What Would Jesus Do?]

Originally posted by Pepperman:
Here is a link from a January WSJ article on breakeven points. Venezuela is way high now... this actually has Saudi Arabia at $104, but I have been told it is more like $80-85.

As to what I disagree with, this topic came up time after time during the "Bush years". Gasoline retailers do not make that much money from selling you gasoline. Sure, right now the spreads are in their favor, but that is cyclical and everybody knows it. Gasoline is a publicly-traded commodity so if you think you can be a retailer and make a lot of money doing so, you are free to start a business right now and do it.

Thanks for that graph. I realize that we aren't talking about the same thing when we say "breakeven point." You and WSJ are talking in terms of the nation's budget. I'm talking in terms of the cost to extract and process the oil. Canada's shale reserves are very costly to extract, for example, regardless of Canada's budget. Obviously both numbers are worth talking about. But my point was that SA can pump and deliver oil a lot more cheaply than Venezuela and, presumably for less than current prices. So SA can afford to keep producing at these levels whereas Venezuela can't. All producers make less profit, of course, but it doesn't cause equal pain.

Which gets back to my other points. Such as that it's in SA's interest to disrupt alternative energy sectors - whether they be green energy or tar sands or fracked gas. If they can convince investors that they will drive prices down to kill the competition, investors aren't stupid and will look for safer investments. Plus, as I pointed out, this works to US advantage in conflicts with Russia, Iran and Venezuela, and may keep the Iraq government on its toes, too.

Meanwhile, we consumers get a break at the pump - even if it isn't as big a break as it seems it should be.