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Saudi Arabia Ready For $20, $30, $40 Oil

Saudi Arabia Ready For $20, $30, $40 Oil thumbnail

Brent crude and West Texas Intermediate (WTI) fell 2 and 3.3 percent respectively to start the week and Saudi Arabia is prepared to go much lower in a bid to trim the fat. Oil Minister Ali al-Naimi said as much in an interview with the Middle East Economic Survey on Monday. Naimi defended the Saudi position and made clear that OPEC nations will not cut production at any price. His comments dismiss any notion of collusion with the United States and spell trouble for producers everywhere.

Since its November meeting, OPEC production has remained relatively steady while trending upward. Libya has had a few slip-ups and Venezuelan production is hurting, but the 12-member cartel exceeded their collective target for the sixth straight month, pumping 30.56 million barrels per day (mbpd). The price however, has fallen roughly 20 percent in that period and shows no sign of returning to its June highs.

For its part, Saudi Arabia accounts for nearly one-third of current OPEC production, or approximately 9.86 mbpd in the month of November. Still, production capacity is nearing 12 mbpd and Naimi suggested the oil-rich nation might put it to use sooner rather than later. It’s all part of a plan to demonstrate that high-efficiency producing countries deserve the greatest market share – an idea Naimi describes as the operative principle of all capitalist countries. OPEC produces around 40 percent of global output, but non-OPEC production is projected to grow 2.3 percent next year after a 3.5 percent expansion this year.

Non-OPEC Liquid Fuels Production

Source: EIA

Naimi’s argument obviously ignores the significant geopolitical factors present in oil trade, but is nonetheless a worthy defense. Among the non-OPEC low-efficiency producers, Saudi Arabia aims to squeeze out Russia – who they mentioned specifically – and particular plays across North America, where non-OPEC growth has been most rapid.

In Russia, President Vladimir Putin and Rosneft head Igor Sechin project calm despite the downward march of nearly every significant indicator of economic health. As the government searches for solutions to the ruble’s disastrous final quarter, Russia’s five leading oil exporters are under orders to sell part of their foreign exchange revenues in the next few months. The EIA predicts Eurasian production will see a drop of approximately 100,000 barrels per day (bpd) into next year. Energy Minister Alexander Novak has yet to revise his production outlook, but admits oil exports will decline by 4.3 percent in 2015.

In North America, efficiency is not really the name of the game. In 2013, US shale accounted for approximately 20 percent of world oil investment while supplying only 4 percent of global production – numbers Naimi would deem unworthy of a market share, even if that market is domestic. The side effects of oil’s decline are less evident to date, but that is not to say they have been completely absent. Despite overall growth, the EIA has lowered its expectation for US production in 2015 by 100,000 bpd. Layoffs are already underway at Halliburton and more are expected elsewhere. In all, US exploration and production spending is projected to fall by more than 35 percent if WTI averages $65 per barrel or below into 2015.

North of the border, Canada believes it can weather the storm. The oil sands, while more capital intensive up front, operate on much longer timelines than shale projects and those already online can breakeven at $40 per barrel. Even so, a handful of Canadian oil companies are slashing their 2015 capital budgets and reducing output forecasts.

It’s unclear whether or not OPEC and Saudi Oil Minister Naimi are simply trying to put a scare into markets long enough to defend their market share – and if they can even keep up in this game of chicken – but the scare is there and the advantage is theirs.

Colin Chilcoat via OilPrice.com



12 Comments on "Saudi Arabia Ready For $20, $30, $40 Oil"

  1. Nony on Sat, 27th Dec 2014 11:00 am 

    Oh…please Saudi’s don’t put that extra 2 MM bpd on the market. Please don’t force me to drink champagne, eat steak and sleep with Jennifer Aniston. I would hate that so much.

    P.s. The poke in Staniford’s eye for SA oil repeaking would be just too much dessert. I might explode from cornie snark.

  2. Perk Earl on Sat, 27th Dec 2014 12:58 pm 

    “Jennifer Aniston” Good taste, corn Nony.

    I think what the Saudi’s are doing is a dare. Meaning don’t expect us no matter how low it goes to drop production to reduce supply to drive up prices.

    http://www.bloomberg.com/energy/

    At that link you’ll find WTI slightly less than 55 and Brent slightly less than 60. It’s been hovering around that price point now for a couple of weeks. Sure there are articles saying it’s going down today, but recently it went up some, so it is just leveling off until some new data comes in regarding supply vs. demand.

    Nony, you forgot to add, Drambuie!

  3. Northwest Resident on Sat, 27th Dec 2014 1:48 pm 

    “In 2013, US shale accounted for approximately 20 percent of world oil investment while supplying only 4 percent of global production…”.

    I wonder if that 4 percent of global production includes all the paint thinner and other non-oil flammable liquids that they call “oil” these days? Probably. If so, then the real percent of global production would be much smaller, I’m sure.

    Twenty percent of investment resulting in (less than) four percent of production. What’s wrong with this picture?

    Hey, at least it created a lot of jobs in the oil industry and supporting industries. It goosed GDP and kept things more or less normal for a while, which is most likely all it was ever meant to do.

    And to think that there are actually people in this world who want to believe that shale oil extraction is the wave of the future. It isn’t. Definitely not. It’s more like the final act in the drama that the industrial age and the age of oil gave us.

  4. Nony on Sat, 27th Dec 2014 2:44 pm 

    If it’s so useless, then why did it change the overall price?

    You people are silly. Refiners have no problem PAYING for that “paint thinner”. Stop listening to flakes like WestTexas and just go research prices. Hint, hint: read up on Tapis oil…

  5. shortonoil on Sat, 27th Dec 2014 4:07 pm 

    I wonder if that 4 percent of global production includes all the paint thinner and other non-oil flammable liquids that they call “oil” these days?

    With more than half of all LTO running an API of >50, paint thinner is probably complementary.

    http://www.nrcan.gc.ca/sites/www.nrcan.gc.ca/files/energy/images/eneene/sources/petpet/images/refraf1-lrgr-eng.png

    A good investment right now may be hangman’s nooses for the CEOs of shale operations. When 2’nd quarter’s ’15 results come in, there is likely to be one heck of a demand for them.

  6. Northwest Resident on Sat, 27th Dec 2014 4:28 pm 

    Nony, what’s silly is crowing about shale oil day after day when it is obvious that the entire shale oil extraction industry is nothing more than an extravagant retirement party for the age of oil. Sure, sing it’s praises for what it is, but don’t pretend it is a “good deal” or that it is something that will save us from peak oil.

    Look at it this way, Nony. If 20% of investment in shale oil extraction only gives 4% of global production, then what does 100% of investment in shale oil extraction give us? Answer: 20% of global production. And that 20% is very generous considering two facts: first, that shale oil extraction is much less expensive in America than in other parts of the world because we had most of the infrastructure already built to support it, and second because all of the sweet spots are drilled first — to get another 4% of global production in America would require FAR more than 20% of investment.

  7. Nony on Sat, 27th Dec 2014 4:57 pm 

    2005:

    Peakers: ZOMFG, we are going to run out of oil. Zombies.

    Cornies: We’ll find some. We always do.

    Peakers: So do you know where you’ll get it from?

    Cornies: Um…no.

    Peakers: HA! Dumb cornie.

    ————-

    2014:

    Cornie: So…hey…how’s the peak oil racket going?

    Peaker: It’s coming.

    Cornie: Your previous predictions were off.

    Peaker: Well…they were perfect for conventional oil. It’s just shale came out of nowhere.

    Cornie: [shakes head]

    Peaker: Let’s talk about beekeeping.

    😉

  8. Nony on Sat, 27th Dec 2014 5:04 pm 

    Shortonoil:

    Your link has ZERO proof that US LTO is half above 50 API.

    Try this one instead:

    http://www.eia.gov/analysis/petroleum/crudetypes/pdf/crudetypes.pdf

    (page 2)

    BTW, 50 API has plenty of value within the US (few dollars less than WTI) and is actually more valuable in Asia (just not shipped there because of the export restrictions).

    The paint thinner silliness is just dumb. Go read some pricing documents. You all sit here and read each others comments and start to think they mean something. Go read Platt’s pricing for the US and Asia instead.

  9. Perk Earl on Sat, 27th Dec 2014 5:59 pm 

    “2005: Peakers: ZOMFG, we are going to run out of oil.”

    Nony, even you run with that running out of oil bit?! No one I knew on The Oil Drum in 05 was saying anything about running out, then or since. It was agreed conventional production went forward from 05 on a rocky plateau. Remember there’s a long distance down between zero (running out) and 90mbd+ all oils. That’s why they call it ‘peak oil’. Try to imagine a peak of a mountain, then look at an angle down towards the ocean. The ocean level represents having run out – zero.

    By the way, NWR, there’s a great Netflix documentary on some mountain climbers/skiers that climb to the top of ‘Mount Elias’. The name between the apostrophe’s is the name of the movie. Hair raising! They finally make it to the top and ski down stuff that if someone makes the slightest mistake on they would surely fall to their ultimate demise. In fact two other climbers died in 2002. At one point they get caught in a blizzard and have to shovel snow out of their snow cave constantly rotating turns because 9 feet of snow fell where they were. A got to see movie. It’s available on Netflix streaming if you are hooked up.

  10. Perk Earl on Sat, 27th Dec 2014 6:22 pm 

    http://www.zerohedge.com/news/2014-12-27/2014-year-propaganda-came-age

    2014: The Year Propaganda Came Of Age

    That propaganda as a strategic and political instrument has been refined to a huge extent over the past 70-odd years since Goebbels first picked up on Freud’s lessons on how to influence the unconscious mind, and the ‘mass-mind’, as a way to ‘steer’ an entire people, not just as a means to make them buy detergent. These days, the media can make people believe just about anything, and they have the added benefit that they can pose as friends of the people, not the enemy.

  11. Nony on Sat, 27th Dec 2014 6:41 pm 

    Peak Earl: You’re ignoring my basic point. That cornies said we would get more oil from somewhere unknown…and we did.

  12. Makati1 on Sat, 27th Dec 2014 6:53 pm 

    Well said, NWR. The above is nothing more than pimping for the oil industry. The numbers are no more accurate than rolling the dice or drawing to a straight. No one knows what 2015 will bring, but the suckers have to be pacified or they will jump ship and it’s Game Over.

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