[Pops]

Why should oil be special in this regard?

Because after you drill a well, once the finding and developing cost is sunk, lifting costs are very low so production is highly profitable—overproduction then has little downside.

The reason for OPEC limiting production in the first place was to support price. Before that the Railroad Commission of Texas limited production to support price. But OPEC is no longer in control because of US production surge. With no limits (except the crude oil ban) frackers fracked away and oil price crashed.

I really think that is the big deal here, no one is restricting the market as they have been since what? The second world war?

I think market speculation kept the price high longer than KSA thought it should be high, they said so way back. Consequently they kinda peed their man-dress a little at the thought demand might actually crash and alternatives get some traction.

“So sooner or later, however much they [US producers] hold out, in the end, their financial affairs will limit their production,” he said.

“We want to tell the world that high efficiency producing countries are the ones that deserve market share,” said Mr Naimi added. “If the price falls, it falls . . . Others will be harmed greatly before we feel any pain.”

http://www.nakedcapitalism.com/2014/12/ ... arrel.html

[sjn]

Why should oil be special in this regard?

Because after you drill a well, once the finding and developing cost is sunk, lifting costs are very low so production is highly profitable—overproduction then has little downside.

The reason for OPEC limiting production in the first place was to support price. Before that the Railroad Commission of Texas limited production to support price. But OPEC is no longer in control because of US production surge. With no limits (except the crude oil ban) frackers fracked away and oil price crashed.

I really think that is the big deal here, no one is restricting the market as they have been since what? The second world war?

I think market speculation kept the price high longer than KSA thought it should be high, they said so way back. Consequently they kinda peed their man-dress a little at the thought demand might actually crash and alternatives get some traction.

“So sooner or later, however much they [US producers] hold out, in the end, their financial affairs will limit their production,” he said.

“We want to tell the world that high efficiency producing countries are the ones that deserve market share,” said Mr Naimi added. “If the price falls, it falls . . . Others will be harmed greatly before we feel any pain.”

http://www.nakedcapitalism.com/2014/12/ ... arrel.html

That's sound analysis by the Saudi's; it says nothing about their ability to set the price of oil. If they cut production, their internal consumption will not drop correspondingly so according to ELM, their exports would be disproportionately affected, and their balance of trade would explode into deficit. Are you sure they aren't just saying the truth for once? Yeah, I know...

[Tanada]

Why should oil be special in this regard?

Because after you drill a well, once the finding and developing cost is sunk, lifting costs are very low so production is highly profitable—overproduction then has little downside.

The reason for OPEC limiting production in the first place was to support price. Before that the Railroad Commission of Texas limited production to support price. But OPEC is no longer in control because of US production surge. With no limits (except the crude oil ban) frackers fracked away and oil price crashed.

I really think that is the big deal here, no one is restricting the market as they have been since what? The second world war?

I think market speculation kept the price high longer than KSA thought it should be high, they said so way back. Consequently they kinda peed their man-dress a little at the thought demand might actually crash and alternatives get some traction.

“So sooner or later, however much they [US producers] hold out, in the end, their financial affairs will limit their production,” he said.

“We want to tell the world that high efficiency producing countries are the ones that deserve market share,” said Mr Naimi added. “If the price falls, it falls . . . Others will be harmed greatly before we feel any pain.”

http://www.nakedcapitalism.com/2014/12/ ... arrel.html

Before the TRRC restricted oil production in the cartel like manner of OPEC we used Coal for most domestic purposes and you can find plenty of info on how 'big coal' controlled prices during the 1880-1950 period. Any time you get massively large entities in control of any vital commodity they end up setting the price. Sometimes they are benign and let the little fishes keep selling into the market, other times they are monopolistic and try to crush all competition. In the benign scenario the little fishes have to accept the price and innovate or get lucky to compete without the benefit of economies of scale. Before it was Coal driving transportation it was the canal networks and large shipping companies, but most canals were like most highways are today, government built and controlled. Before canals we are all the way back to toll roads which were quite common all the way back to the fall of the Western Roman Empire.

That may seem a bit of a wandering narrative but everything in the list is about transportation and trade, no matter what the Marxists may think it is not manufacturing that drives economies. It has always boiled down to ease of transportation from point of origin to point of use. Small towns needed a blacksmith and a cobbler and a haberdashery and so on and so forth all as small businesses because it was difficult or expensive to move stuff from here to over there just to sell it. Canals and Trains in their turns created towns all along their routes because easy transportation made it cheap to move stuff to and fro. Highways were the great leveler, when the American Autobahn system was created in the 1950's living anywhere near one was much more convenient that not, but the small town system created by railroads and canal morphed into suburban sprawl.

Why? Because with roads (and oil) you get individual automobile instead of mass transit canal boat or railroad car. For the last 65 years or so the private car/light truck meant you could cheaply live outside the city. Take away the cheaply part and people will have to adapt back to the small town model with big cities at the end points of the routes. I recently saw a short blurb by a sociologist who studied American population dynamics over time. The conclusion was based on a simple statistic, every small town in America more than 50 miles from an interstate route has lost population over the last 30 years while those along the interstates have all gained population.

[Pops]

it says nothing about their ability to set the price of oil.

If that is true, why the widespread MSM coverage and investor panic at each mumble and meeting?

WSJ
Updated Nov. 27, 2014 8:54 p.m. ET

VIENNA—OPEC members rejected calls for drastic action to cut their oil output, keeping their production ceiling unchanged and suggesting the cartel is bracing for lower prices longer term.

The decision on Thursday sent crude prices into a tailspin and spilled into currency and European stock markets. If Thursday’s market rout proves lasting, it will provide more relief to consumers in gasoline-guzzling countries like the U.S. But it is hammering the finances of big oil producers, from Russia to Venezuela, and biting into profit at oil companies big and small.
...
The decision sent oil prices tumbling, with the West Texas Intermediate benchmark falling below $70 a barrel for the first time in more than four years. Oil for January delivery fell $4.64, or 6.3%, to $69.05 a barrel as electronic trading on the New York Mercantile Exchange halted at 1 p.m. Thursday. The Nymex floor was closed Thursday in observance of Thanksgiving. The global Brent contract for January fell $5.17, or 6.7%, to $72.58 a barrel on the ICE Futures Europe exchange.

Currencies of major oil producing countries slid, with the Russian ruble hitting a record low against the euro and nearing an all-time low against the dollar. Share prices of major European oil companies dived, with Royal Dutch Shell PLC down 4.3%, Total SA off 4.1% and BP falling 2.7%.

Half a million hits on OPEC to maintain production

[sjn]

Tanada, I absolutely agree with that, what's to argue with? However, all I'm suggesting is that SA are no longer in a position to set the price of oil. OPEC has lost what control of the market it had, and lets be honest, if that wasn't the case, and implicitly accepted, this conversation wouldn't be happening: Why would it be solely the Saudi's responsible for maintaining the price?

[sjn]

it says nothing about their ability to set the price of oil.

If that is true, why the widespread MSM coverage and investor panic at each mumble and meeting?

Now that it a really pertinent "tin-foil" question!

[Subjectivist]

Tanada, I absolutely agree with that, what's to argue with? However, all I'm suggesting is that SA are no longer in a position to set the price of oil. OPEC has lost what control of the market it had, and lets be honest, if that wasn't the case, and implicitly accepted, this conversation wouldn't be happening: Why would it be solely the Saudi's responsible for maintaining the price?

It seems like any two of the top three producers working together could set the price while limiting their own damage in the process, say Russia and KSA each announce a 1 million bbl0/d cut in production. That would have a near instant impact on world prices. Neither would suffer more from losses than the other and doubling prices would more than make up for lower sales volume.

[sjn]

Tanada, I absolutely agree with that, what's to argue with? However, all I'm suggesting is that SA are no longer in a position to set the price of oil. OPEC has lost what control of the market it had, and lets be honest, if that wasn't the case, and implicitly accepted, this conversation wouldn't be happening: Why would it be solely the Saudi's responsible for maintaining the price?

It seems like any two of the top three producers working together could set the price while limiting their own damage in the process, say Russia and KSA each announce a 1 million bbl0/d cut in production. That would have a near instant impact on world prices. Neither would suffer more from losses than the other and doubling prices would more than make up for lower sales volume.

If a doubling of prices would occur. That isn't without significant risk: what if prices are limited by available capital, and capital limited as a function of return on high net energy oil input to the global economy? What if the current price of commodities is representative of what a depressed global economy (China?) can demand?

[Tanada]

Tanada, I absolutely agree with that, what's to argue with? However, all I'm suggesting is that SA are no longer in a position to set the price of oil. OPEC has lost what control of the market it had, and lets be honest, if that wasn't the case, and implicitly accepted, this conversation wouldn't be happening: Why would it be solely the Saudi's responsible for maintaining the price?

Sjn I think you are right on target, for 30 years OPEC relied on KSA to shift their own production up or down to influence prices in ways that benefited all the members. I remember back when KSA went full bore to flood the market in 1985/86 the other OPEC members were all cheating hand over fist pumping more than their agreed to quota's to take advantage of the "high" prices of the time. Finally KSA was down to pumping something like 1/3rd of their capacity rate just to support prices for all the cheaters and they decided to teach them a lesson. After the big price crash nobody doubted that KSA was in the driver seat setting world prices through delivery capacity.

Today they call it defending market share, but is it really? On the one hand maybe they really are just defending their share of the market but on the other hand maybe they are trying to teach Russia and USA frackers a lesson in practical production limits. On the gripping hand perhaps they see global Peak on the near term time horizon and want everyone to know they were not the cause when everything starts going steep decline rates.

[ennui2]

perhaps they see global Peak on the near term time horizon and want everyone to know they were not the cause when everything starts going steep decline rates.

Most peak oilers think the reverse, that oil producers who become more concerned with PO will reserve more for their own use. I think it's unlikely that any oil producer will try to play hero and export what they think will be the last hurrah of their oil in order to make things more comfortable for the world.

[ROCKMAN]

T - "After the big price crash nobody doubted that KSA was in the driver seat setting world prices through delivery capacity.". A bit of an overstatement IMHO. Your example is a great case for their ability, in conjunction with the rest of OPEC, to NOT PREVENT the low prices of the mid 80's. But instead of "ability" one might say" inability". But can anyone name a time in the last 35 years when they've used their capabilities to increase the price of oil? So why now would folks think they've sudden developed the ability to do so? If the KSA could have stopped oil prices from falling to $17/bbl in the late 90's why would they allow the current price? IOW were they also trying to protect market share when they "allowed" the $17/bbl price?

It's very difficult IMHO to prove that OPEC has had any ability in the last 30+ years to force oil prices upward. Just consider: the KSA/OPEC forced oil prices down in late '08 by decreasing production over the following 12 months? And then forced prices up over the next 4 years by increasing production to record levels?

So again: when in the last 3+ decades has the KSA or OPEC has forced oil prices up by voluntarily reducing production?

[Synapsid]

Subjectivist,

Poor wording on my part: "...knowledge of shale resources..." would be better as "knowledge of shale-oil resources" or something similar; the context was the recruiting ads specifying shale experience.

Saudi Arabia's shales will have been mapped, as you say; not all shales are oil producers though--most are not--but what Saudi Aramco is going after is the part of the shale inventory that will produce oil or NG.

Actually, the mistake of ours that I meant the Saudis should not repeat is not going after the shales, but rather going hog wild about it.

[ROCKMAN]

Syn - And let's not forget the dirty little secret some like to ignore: the US oil industry didn't go hog wild after the shales to decrease our dependence on oil imports and to help the economy. We did it to make a living. And a lot of folks made a damn good living without producing much profits...some none at all. Again I'll refer to the boys at Petrohawk who sold their undeveloped Eagle Ford acreage for $15 billion and then ran from the play like a scalded dog. LOL. The US pubcos did what they had to do to make Wall Street happy by booking ever increasing asset value. Until this year, of course. But don't feel sorry for the employees/management of those companies: they made $billions. Which was the real objective. As I've mentioned numerous times there are many ways to make a great deal of money in the oil patch that doesn't require developing reserves profitably. Remember my story about a company in the late 70's that drilled 18 dry holes and the managers walked away millionaires.

For the KSA developing their shales their only motive would be making a profit. Not quit the same dynamics for Cheasapeake et al. LOL.