[slackercruster]

Scary stuff if Russia controls the price of oil.

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.

Related: Genel’s Stock Takes A Hit As It Slashes Reserves In Half

Now, with Russia stepping in to negotiate with OPEC nations, a new picture is emerging. With its military might, Russia can assume de facto leadership of the oil-producing nations in the name of stabilizing oil prices.

Saudi Arabia has been a long-time U.S. ally, but that, too, is changing. Charles W. Freeman Jr., a former U.S. ambassador to Riyadh, recently noted that “We've seen a long deterioration in the U.S.-Saudi relationship, and it started well before the Obama Administration.”

U.S.-Saudi relations further soured due to the Iran nuclear deal that ended in January with the U.S. lifting sanctions—a move the Saudis vehemently opposed. The Saudis had to look for a new ally to safeguard their interests in the Gulf, considering the threats they face from the Islamic State (ISIS) and Iran. Though both Russia and Saudi Arabia are on opposing ends in Syria, with Russia supporting Syrian leader Bashar al-Assad and the Saudis supporting the Sunni rebels, the large drop in prices seems to have opened a window of opportunity for Russia to ally with Saudi Arabia.

This is not the first time that Russia and Saudi Arabia have sought a close partnership. Even in 2013, The Telegraph had reported an attempt to form a secret deal, which did not go through. Iran has been a trusted ally of Russia for a long time, and if Russia can broker a deal between Iran and Saudi Arabia, it can also push through some sort of secret OPEC deal.

Related: Saudis Turn To Capital Markets For $10 Billion Loan

The production freeze to January levels that was bandied about last month carries no significance in concrete terms because Russia, Saudi Arabia and most other nations on board are pumping close to their record highs. Barclays’ commodity research chief Kevin Norrish said it was “vital to note” that there was not much incremental production expected from Russia, Qatar or Venezuela this year anyway. It was the Saudi’s that really mattered, as reported by Forbes.

http://oilprice.com/Energy/Energy-Gener ... upply.html

[evilgenius]

The article suggests that with their military power the Russians would be a formidable opponent to the US in the region. To me, Russia seems to have the technology, but they would run out of money trying to match what the US can throw at them. They can't build at the same scale the US can in terms of high tech weaponry, and neither do they have much practice dealing with funding sources, the American public, who don't want to see overt things like troop death numbers or other shocking losses of life anymore. The US military has gotten pretty good at working around those parameters. The Russians don't even accept that their funding can encounter such a political limitation. In effect they aren't playing on the same chessboard.

Plus, the Russians would have to overcome the need to do things the old fashioned way. Modern war is not so cumbersome as they like to wage it. Even when they forced Georgia to capitulate they spent way too many resources to achieve their objective. The US does know how to conduct war more intelligently, such that they can project power without having to spend as much money. Any confrontation over power that avoided all out war would, therefore, have to take this reality into account. The Russians would probably go broke even trying to keep an alliance together because the US would be about doing things to make them spend money at a rate they cannot keep up.

That being said, it does look like they have to do more. With the threat that an independent Ukraine poses to them in terms of strategic military position relative to their own oil fields they could be in for trouble in the coming decades if the US firms up its relationship with Iran, and all of the smaller satellite countries in region, like Armenia and Azerbaijan follow suit. Bombing heavily in Syria is some kind of beginning, but it waffles toward the same problem they have with overdoing it. Look at the tough guy reputation they have already gotten for being merciless and sticking with what they were doing regardless of what other actors in the process were trying to do. It's not going to teach peace. Peace is what you ultimately need to use to keep control. It's worked for the US for decades.

[ROCKMAN]

Yes indeed: the Rockman can't wait for ROPEC to take control of the global oil market and push prices up in a manner that OPEC has never been able to. The US oil patch just can't wait it to happen...and wait...and wait...and wait...and wait. LOL.

[dissident]

This article is total rubbish. Saudi Arabia is not threatened by ISIS/Daesh, it owns them. There is no way that the Saudis would get chummy with Russia. Russia is bombing their Wahabbi jihadi proxies into oblivion. And any spats with the US are token theater for saps. The USA and the KSA are in the same pack, the terrorist sponsor pack along with NATO member Turkey. You can see NATO member states falling all over themselves selling weaponry to the KSA and only showing concern that some of that weaponry is falling into the hands of Yemenis. As if Yemenis defending themselves from the butcher Saudi invaders is a real concern:

http://www.cbc.ca/news/canada/manitoba/ ... -1.3455889

Canada and the rest of NATO are an absurd joke. They should be investigating their original arms deal with the headchopper, terrorist sponsor Wahabbist state.

As for Russia running out of money to engage in the sort of military activity it is engaged in Syria, put the crack pipe down. It is the USA and its 10x inflated military costs that needs to watch out for how many more trillions in debt it stacks on to the $19 trillion it has today.

[SeaGypsy]

Well said Diss, couldn't agree more. What a pile of bunk.

[careinke]

Dis understands the situation way more than most. As a matter of fact, I would say he is spot on. I can see a Saudi/Israeli agreement before you get an Iran/Saudi agreement. Persians and Arabs are different people, and Arabs have a long memory.

[Plantagenet]

We're in an oil glut. The only important question is who will cut production.

Russia? No

Iran? No

Saudi? No.

Venezuela? No

So how will they control anything if no one will cut production?

[SeaGypsy]

Israel hasn't been attacked at all by IS & there is evidence of at least some degree of collusion with Israel providing medical services to elite IS fighters.

[ROCKMAN]

"The only important question is who will cut production." And what if someone does make a big cut? The last time we saw a comparable collapse in the price of oil the KSA cut production to the bone by 1986 and what did it accomplish during the previous 6 years: a continuous slide in oil prices. And when the KSA opened the taps back up in 1986 the price fell to less then $20/bbl. Subsequently the price of oil stayed around the current price level for the next 20 years. Not that history always repeats itself exactly the same. But the 1975 to 1990 price/production dynamic is the only one similar to what we are seeing today. So the same future...a different future? Time will tell.

[radon1]

G says about 14 year cycles in oil prices which are linked to the average lifespan of an oil rig (which is around 14 years).

[evilgenius]

The big fly in the ointment for the US, regarding how well they can stop Russian interest in the Middle East, is whether the dominance of the aircraft carrier can be maintained. It's a good model because the things needed to maintain the carrier as a dominant projection of power can be introduced modularly, in the form of specialized anti-submarine or anti-fast drone or anti-missile capabilities either on existing or purpose built ships. Carrier power is projected as a fleet. What they can't stop is whether anti-aircraft technology will advance beyond what piloted aircraft can survive. They can lose planes in big wars and they can lose planes to normal accidents and stuff, but if they lose planes every time they try to project power over areas they now don't have any trouble with the house could fold. There's bound to be a transition period with AI that will be dangerous in this regard. As long as they can snuff out all radio signals they are fine against remotely piloted drones or anti-aircraft missiles, but once AI becomes good enough to perform autonomous air defense in very small, very high speed air frames who knows? By then they may not need pilots either. As I say, it's whether they get caught on the wrong side of technology during the transition that matters.

[kublikhan]

Well said Rockman. All these backroom deals and what cuts have we seen? Nada.

"Let's freeze production at current levels. That will convince the talking heads that oil prices are rebounding."
"But we were not planning on adding any more production this year anyway. Plus Iran & Iraq are adding a million barrels a day this year."
"Shhh. Not so loud."

I'm not predicting any meaningful cuts on the horizon. Although I don't think prices will stay low for 20 years. I think we will see a rebound a good deal before then.

[evilgenius]

So how would you tell the difference between an agreement that cut production and, say, the reality of depletion catching up with the Saudis? If they went that far would there be a silent exodus of their nearest and dearest to London? My guess is no. They go back and forth anyway, and could simply not return from their latest trips in numbers that bespoke of something if there was some kind of open discovery. Otherwise, they wouldn't need to set up any overt operation. Nothing so obvious would tip their hand.

Probably the way to discover if they have seen that kind of reality, and I'm not saying they have, would be KSA's efforts to develop LNG as a much larger part of their exporting equation. Mind you, that would have to come commensurately, or just after, a marketing campaign to convince their existing or potential markets to commit to that as well. They're in a tough place if they become impacted by depletion. They have basically failed to gain control in Iraq, and fold production from there into their own exporting complex. They can't cover up inadequacies in their own fields by using an aggregate comparison in conjuncture with de facto corruption. If depletion has or threatens to become a near-term reality for them Iran holds too many cards better than they do at the moment.

Yeah, Russia does lie behind Iran. They are the dragon in the room. A limited engagement with Russia that acknowledged common interests and sought to keep the status quo going for an indefinite period of time could work for them, helping them avoid civil war, but they would have to make certain that it was kept low key enough not to involve Iran in any way that appeared to concede sovereignty. KSA could engage Russia in a limited fashion under such circumstances. They would still have to be wary of the United States.

[kublikhan]

Production cuts are abrupt and sharp:

December 17, 2008 - The Organization of Petroleum Exporting Countries, in a bold but not unexpected move to prop up falling oil prices, said Wednesday that it would cut production by 2.2 million barrels a day starting next month. The new cut comes on top of a recent decrease of 2 million barrels a day announced earlier, bringing production down a total of 4.2 million barrels per day.

Oil sinks to 4 1/2-year low after OPEC cut

Depletion tends to be slow and gradual. It took 10 years for Mexico's oil production to fall by a million barrels a day. OPEC achieved much sharper cuts in a few months.

[evilgenius]

Production cuts are abrupt and sharp:

December 17, 2008 - The Organization of Petroleum Exporting Countries, in a bold but not unexpected move to prop up falling oil prices, said Wednesday that it would cut production by 2.2 million barrels a day starting next month. The new cut comes on top of a recent decrease of 2 million barrels a day announced earlier, bringing production down a total of 4.2 million barrels per day.

Oil sinks to 4 1/2-year low after OPEC cut

Depletion tends to be slow and gradual. It took 10 years for Mexico's oil production to fall by a million barrels a day. OPEC achieved much sharper cuts in a few months.

That makes sense. Mexico, however, is a much different beast than Saudi Arabia. I gather that the Mexicans were more than willing to ride Canterell hard and put it away wet. I don't know if the Saudis would do that and not be aware they were. Plus, they are much better about reinvesting in order to keep things going. They do have a lot of the same constraints, forestalling the ire of the people, but a monarchy holds a different position to an elected government. That might not make any difference to what you say, though. I like your point.

[ROCKMAN]

Mexico's Cantrell Field is a very different reservoir the the typical OPEC field. Once the N2 gas cap expands down to producing well it has to be taken offline immediate!y. But the water drive ME reservoirs can see their wells keep producing for decades. s said the KSA can keep investing in more efficient systems to handle the ever increasing amount of water production. But I think many folks are failing tyo see the elephant in the room: a lack of NEW reserves es discovered by the KSA. Those big fields cvurrerntyly being developed were discovered many years ago with development undertaken in large part to higher oil prices

Here's a contest: who can name a significant NEW oil field discovered in Saudi Arabia in the last 10 years? Not one that wasn't discovered more then 10 years ago and wasn't economical to derverlop until recently.

[dissident]

http://www.zerohedge.com/news/2016-03-1 ... ueeze-ends

Looks like somebody is not afraid of low oil prices in disagreement with all the cherished MSM narratives.

[evilgenius]

Mexico's Cantrell Field is a very different reservoir the the typical OPEC field. Once the N2 gas cap expands down to producing well it has to be taken offline immediate!y. But the water drive ME reservoirs can see their wells keep producing for decades. s said the KSA can keep investing in more efficient systems to handle the ever increasing amount of water production. But I think many folks are failing tyo see the elephant in the room: a lack of NEW reserves es discovered by the KSA. Those big fields cvurrerntyly being developed were discovered many years ago with development undertaken in large part to higher oil prices

Here's a contest: who can name a significant NEW oil field discovered in Saudi Arabia in the last 10 years? Not one that wasn't discovered more then 10 years ago and wasn't economical to derverlop until recently.

That's why I suggest that if the Saudis are running close to decline they might increasingly emphasize LNG. They do have off-shore possibilities with that, I think, that have a lot of potential. I don't know what the state of their on-shore gas production is. I'm only thinking about some article I read years ago someplace concerning what else the Saudis have beside oil. That article went rather deeply into their potential for off-shore gas wells, alongside the other major players in the gulf. I think it also stated that the Saudis would not be number one in that game, but still a significant player.

A few years ago Boone Pickens was trying to get the US to consider natural gas as an alternative to gasoline for vehicle fuel. The rise of fracking pretty much derailed that talk. Somehow it didn't seem to make much sense in the face of a looming oil glut. Now, I suppose the competition is also lithium. It could be that, for various reasons, both gasoline and electric vehicle transportation have an edge over natural gas for the future. For both of them it appears that it would be less capital intensive to move forward from here than to exploit natural gas as a vehicle fuel, in spite of the reserve picture. But there are a lot of things, especially its cleaner burning nature, that could change that.

Like I said, I'm not saying that the Saudis have seen the reality of depletion. I'm merely pointing out that they do have other ways to go in the face of it than power games with Iran. Right now they would have a lot of money to spend to market that potential to the rest of the world, given the capital disadvantage natural gas faces as a transportation fuel. Only they know what their reserve situation really is. They don't publish that data, and are more than willing to let wildly speculative figures propagate out here where we are. Their position is more powerful as long as we are all speculating. If they did make an agreement with the Russians it would still leave us in the realm of speculation, but as things played out it also might make for something as far as hindsight goes.