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Page added on December 1, 2016

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US and Saudi Arabia establish new relationships with oil

Production

When gasoline prices spike over the next few days, find some comfort in knowing that the extra money will benefit struggling Texas companies and the U.S. economy.

Admittedly, the idea that higher oil prices could benefit the U.S. is radical. Historically, higher oil prices have dragged down the economy by taking more money from American pockets and sending it overseas. But now that the United States is one of the world’s largest energy producers, higher prices mean more revenue for U.S. oil companies that will ultimately spend it rehiring American workers to drill largely Texas wells.

This puts the nation in the same league as Saudi Arabia. But while the incoming Trump administration talks about ramping up oil production, Saudi Arabia is planning for demand for oil peaks, and we should as well.

For evidence that an extra 5 cents to 15 cents a gallon will not hurt the U.S. economy, consider how little the $1 drop in prices helped in 2014. At the time, many economists expected an economic boost because the average American family had an additional $200 a year to spend on things other than fuel.

The extra spending, though, was offset by more than 140 companies going bankrupt, more than 120,000 oil workers losing their jobs and more than $120 billion in capital disappearing from oil company balance sheets. Cheaper foreign oil also encouraged refiners to import more oil, actually increasing our trade deficit and lowering our gross domestic product.

Higher energy prices, therefore, could reverse some of the capital destruction. I explained on Wednesday how it will take time for the market to work off inventories, pay off debts and spark new investment, but sustained prices above $55 a barrel could boost oil company spending in late 2017 and 2018. That means rehiring unemployed workers.

Additional U.S. oil production also means fewer imports and a lower trade deficit, which boosts GDP. Limited demand growth and fierce competition will luckily cap gasoline prices at historically low levels, minimizing the pain to consumers.

OPEC, which drove up prices by announcing production cuts on Wednesday, also has no interest in Americans paying $3 a gallon for gasoline. That would hurt U.S. economic growth and reduce demand, as well as encourage more competitors to pump oil and diminish the cartel’s market share.

Saudi Arabia, the world’s largest and lowest-cost oil producer, is particularly interested in maximizing profit without choking off demand, said Antoine Halff, director of global oil markets at Columbia University’s Center on Global Energy Policy. The Saudis issued $17.5 billion in sovereign bonds in October and have promised to sell shares in the national oil company, Aramco, within two years. The value of both the stock and bonds is based on oil prices.

“The kingdom’s goal of reducing its dependence on oil prices, ironically, requires them to prop up the oil price initially,” Halff said. “Now that they’ve gone to international debt markets, now that they’ve gone very aggressively into the equity markets with the partial privatization of Aramco, the strategy of accepting low prices doesn’t work anymore.”

Deputy Crown Prince Mohammad bin Salman, who is in charge of transforming Saudi’s economy, plans to use the cash raised to attract new industries to the kingdom while investing in petrochemical facilities, natural-gas-only wells and massive solar-energy projects. He is concerned about the demand for oil peaking and the kingdom being left with a sea of oil that no one wants.

“The massive national transformation program for 2030, the massive decarbonizing of Aramco and the effort to go to public debt markets to finance the budget, all of this changes the incentives for the Saudis,” Halff said.

The Saudis are not the only oil producers worried about future demand for oil. Most major European oil companies are planning for peak oil demand as the world shifts to electricity to power transportation. Simon Henry, chief financial officer for Royal Dutch Shell, shocked analysts last month when he suggested demand for oil might peak sooner than most expect.

“We’ve long been of the opinion that demand will peak before supply,” Henry said on a conference call discussing the company’s shift to natural gas production. “And that peak may be somewhere between 5 and 15 years hence, and it will be driven by efficiency and substitution, more than offsetting the new demand for transport.”

This doesn’t mean the world will use less energy, it will simply tap different sources. Texas is already a leader, moving away from coal to generate electricity from natural gas and from the nation’s largest wind-turbine capacity.

The United States would do well to follow Texas’ and Saudi Arabia’s example and use oil revenues to develop the energy resources of the future. Being a net energy exporter would be a fantastic achievement, but let’s do it in a way that will last for generations, not simply capitalize on short-term trends in oil prices.

Chron



14 Comments on "US and Saudi Arabia establish new relationships with oil"

  1. Apneaman on Thu, 1st Dec 2016 9:57 pm 

    Trump really has his work cut out for him if he wants to beat the reigning POTUS Cancer King.

    Obama’s dirty secret: the fossil fuel projects the US littered around the world

    Through the Export-Import Bank, the Obama administration has spent nearly $34bn on dirty energy plants in countries from India to Australia to South Africa

    https://www.theguardian.com/environment/2016/dec/01/obama-fossil-fuels-us-export-import-bank-energy-projects

    Every time any politician talks about “fixing” or “fighting” climate change, it’s all bullshit folks. Plenty of sweet talk to keep the libtards happy, but BAU is priority #1. Too late now anyway, so enjoy your remaining dopamine hits. I am.

  2. Boat on Fri, 2nd Dec 2016 4:35 am 

    Ape,

    Instead of blaming the o’l US of A for every day of the worlds cancer causing emissions, let’s set aside a moment of blame for the worlds enablers. The FF exporters. Canada, the home of the ape is a top 5 winner. They are married in responsibility with the usual suspects like the Saudis, Russia, Iraq etc. What an esteemed group of planet saving leaders. Lol

  3. penury on Fri, 2nd Dec 2016 10:50 am 

    Another meaningless word spew, from know nothings to care about nothings.

  4. rockman on Fri, 2nd Dec 2016 11:12 am 

    Small shots at the author: “But now that the United States is one of the world’s largest energy producers”. The US has always been one of the world’s largest energy producers… nothing new about that.

    As far as the trade balance with respect to fossil fuels: “…U.S. oil production also means fewer imports and a lower trade deficit…” The fact that the US increased the export of refinery products by more then 350% just in the last 10 has been much more help with the trade balance then the reduction in oil imports. As of last Sept the US was exporting refinery products at the rate of 1.6 BILLION BBLS PER YEAR. From the peak of US oil AND refinery products imports in 2015 the decline as of Sept has only been at the rate of 600 million bbls/yr. Obviously the foreign income from selling 1.6 BILLION bbls of refinery products greatly exceeds the reduced outflow of $’s buying foreign oil.

    Many don’t realize that the US is the largest exporter of refinery products in the world. Below are the 15 countries that exported the highest dollar value worth of refined oil during 2015:

    United States: $74.7 billion (12.3% of total)
    Russia: $65.6 billion (10.8%)
    Singapore: $42.1 billion (7%)
    Netherlands: $41.9 billion (6.9%)
    South Korea: $30.7 billion (5.1%)
    India: $30.5 billion (5%)
    Belgium: $24.7 billion (4.1%)
    Saudi Arabia: $24.1 billion (4%)
    China: $19.1 billion (3.2%)
    United Arab Emirates: $15.4 billion (2.5%)
    Italy: $13.1 billion (2.2%)
    Kuwait: $13 billion (2.1%)
    Germany: $12.4 billion (2%)
    United Kingdom: $11.5 billion (1.9%)
    Canada: $11.4 billion (1.9%)

    And our income may be going up – just saw a quick news flash this morning: a massive explosion at an Italian refinery…one of the largest in Europe.

    And lastly: “And that peak may be somewhere between 5 and 15 years hence, and it will be driven by efficiency and substitution, more than offsetting the new demand for transport.” Rather optimistic IMHO given that 98.5% of the 83 million light vehicles sold in 2015 were ICE’s with that volume increasing y-o-y since the auto slump ended.

  5. rockman on Fri, 2nd Dec 2016 11:30 am 

    Boat – Sorry but I have to disagree with you. Neither the exports nor the producers are the “enablers”. Most of the health damaging emissions are DIRECTED generated by another group: the consumers of refinery products who produce the great majority of the GHG et al in the world. It is the consumers that enable ff production by financially rewarding the energy companies. After all, if those folks only burned 10% of their current consumption how many countries wouldn’t be exporting oil and how many oil companies wouldn’t even exist today?

  6. Boat on Fri, 2nd Dec 2016 12:22 pm 

    Rock,

    Your right of course. To go an extra step one could say just about every human benefits and is negitively affected by oil. The same thing could be said about any commodity. I like your 10 percent use analogy. If we all used 90 percent less of everything would be better. I will keep waiting for 90 percent of humans to disappear as well.

  7. Apneaman on Fri, 2nd Dec 2016 2:03 pm 

    Boat, don’t fall for rockmans get out of jail rationalizations. Yes consumers are guilty too, but let’s not forget fossil fuel industry’s yearly multi billion dollar denial campaign to mislead the public. Also their corruption of politicians and regulatory boards. Humans are natural reward seekers and the neoliberal system they were born and live under is designed to promote mass consumerism. The propagandists (think tanks, marketing scum, government spin Dr’s) who work for those at the top know all the science of human behaviour as well as the researchers and use it unabashedly to manipulate the “consumer” (formerly citizen – another PR ploy). For every scientist who studies human behaviour and their motivations at the individual and group level there are thousands of well compensated (and cynical) propagandists whose lives are devoted to manipulating the citizens base inherent instincts so they consume shit they do not need and believe it’s “normal”. Further, liar rockman likes to pretend that the whole consumer thing just sprung up organically on it’s own when, that is, at best, a half truth. Most humans born into this toxic system had very little no choice. Bottom line, is rockman is a lying sack of shit, as per usual, and this system and it’s criminal scientifically refined manipulations of the humans will bring on human extinction later this century. A less corrupted system would have bought more time. Oh and don’t say “it’s just capitalism” boat, because capitalism as per it’s official definition does not subsidise 1000 corporate jobs for Carrier or give trillions in subsidies to industries like big oil et al . It’s corporatism – privatize the profits and socialize the costs. Under the definition and rules of capitalism many corporations, Chrysler, GM, banks, a number of airlines, would be long dead and industries would be much smaller than they are to day. Debt/theft from future and present generations is why they are still around.

  8. rockman on Fri, 2nd Dec 2016 3:11 pm 

    “Yes consumers are guilty too, but let’s not forget fossil fuel industry’s yearly multi billion dollar denial campaign to mislead the public.” At least the companies return some of their profits to the economy while the primary direct creators of climate change, the consumers like Apeneaman, don’t spend a dime since they seldom even admit their guilt let alone acknowledge their role in damaging the environment. As far as any monies spent by the industry’s PR departments all I can say is thank you to Apneaman and the rest of the ff consumers. Without the monies they provide the industry we wouldn’t be enabled to carry on any of our efforts.

    Sincerely, thank you Apneaman et al: without your support we wouldn’t exist. LOL.

  9. Boat on Fri, 2nd Dec 2016 5:21 pm 

    The oil industry like most human creations will always have many of the same characteristics. Most are far from perfect. Why is oil the worlds largest commodity. It’s pretty darn useful. Only a replacement will slow oil. That or climate change creating much more destruction than ape reports. Oil is that darn good. At some point FF and climate change will equalize. What’s left and who’s left is the question along with how long until we reach that point.

  10. Apneaman on Fri, 2nd Dec 2016 7:36 pm 

    rockman, how many fucking times have I told you and everyone else I’m a retired Boilermaker who has built and done maintenance on the Alberta tar sands plants, refineries, tank farms, petrochemical plants, pulp mills, power stations.? How about at least 25 fucking times. Holy fuck dude what’s going on with your brain? Is it your meds? I also told y’all I have managed to live off 15K Canadian for the last 6-7 years even though my income is a little over double that and am still breathing. And $1500 of that is for tobacco and rolling papers. Like you I was a big cancer infrastruc builder and was about as well paid as any man on the tools. Unlike you I could not carry on and look at my nephews and nieces. I made a choice. You still carry on and brag about it and have the gall to brag about your daughter’s college future? Get fucking real asshole. She ain’t got the future that you have dreamt up. Her future is going to be misery and short compared to your lifespan. None of you could slow down one fucking bit. More more more like greedy clawing fat rats fighting over a dead slug. At a third of our consumption/energy we are still kings, but no no no y’all fuck heads need a big 5700 lb dodge ram or escalade to show your wealth and same for the Mcmansions and entitlement bucket lists all the rest of it. Fucking pigs at the trough. Make all the excuses and rationalizations you want fuckO…..just remember when the pain comes to you and yours that you did absolutely nothing except make it worse while aggrandizing your cancer industry career. King cancer holding court at peakoil.com. You’re not all that unusual as far as scum fuck deluded humans go, but the bragging and Texas swagger and never ending industry apologetics while the biosphere unravels at an ever increasing pace is beyond deplorable. You are spineless coward and a liar – not a man. Keep digging up that cancer and bragging about it. That’s what your Jeebus created you for right? To willingly and gladly bring on the pain as fast as fast can. You can believe all that Texass cancer industry PR all you like and enjoy all that big man social status down there in cancer land, but I ain’t buying it. Big shock for you to be challenged huh?

  11. Apneaman on Fri, 2nd Dec 2016 7:51 pm 

    For anyone interested here is an early (1929) example how they use the findings of psychology to manipulate humans to act against themselves for their profit and power.

    Torches of Freedom

    “Torches of Freedom” was a phrase used to encourage women’s smoking by exploiting women’s aspirations for a better life during the women’s liberation movement in the United States. Cigarettes were described as symbols of emancipation and equality with men.”

    “(Torches of Freedom)…was used by Edward Bernays to encourage women to smoke in public despite social taboos. Bernays hired women to march while smoking their “torches of freedom” in the Easter Sunday Parade of 1929 which was a significant moment for fighting social barriers for women smokers.”

    “In the 1990s, tobacco companies continued to advertise cigarettes as “torches of freedom” as they sought to expand their markets around the world.”

    https://en.wikipedia.org/wiki/Torches_of_Freedom

    It’s not in this article, but Bernays also had a few reporters in his pocket to hype it up. That was early days and Joseph Goebbels used Bernays tactics to run the Nazi propaganda machine to great effect. The oil boys spend billions hiring the same people to spin their lies and science disinformation campaign. The reason the propaganda industry generates hundreds of billions every year is because it works. Trump hired the same people and so did hillary and so have all these sub human politicians so many keep putting their faith in. None of this is a secret, yet it never ends. Sheeple is a totally appropriate term.

  12. makati1 on Fri, 2nd Dec 2016 7:55 pm 

    Ap, few want to even think about the real future or how it is going to affect them and their families personally. Rockman’s daughter has the same ‘future’ my grand kids have. Brutish, painful and short. I have accepted that. I help them prep as much as I can, but I cannot stop the consequences of our past.

    They also live in the most dangerous and broken country on the planet, America, and will suffer even more than my neighbors here in the Ps. If the world holds together for another decade, some of them may join me here. Most likely, it will not last that long. If we have not gone over the cliff by 2020, I will be pleasantly surprised.

    I can live on much less than your C$15K but I live in a less expensive part of the world. I will make one more trip to the U$ when my step-dad passes to help my sister with closing out his life and to say goodbye for the last time. I have nothing there that I need to return for. Family can visit me if they desire. Otherwise, there is the internet, as long as it lasts. After, it will not matter.

  13. Apneaman on Fri, 2nd Dec 2016 8:39 pm 

    Mak, the death toll is still relatively low given the population size and it’s even lower in wealthy countries after these increasing AGW jacked events, because we have resources that poorer countries don’t. The costs are mounting (Debt) and the biggest blow is the repeated blows to the infrastructure. Our resilience and resources are not infinite and are being pushed at an astonishing pace. How long can societies keep repairing and/or rebuilding the same infrastructure? How long can FEMA keep subsidizing Americans flood insurance? They are already in debt to the tune of 25 billion. It’s a whole different story for the uninsured after the disaster. Just look at what happened in Louisiana earlier with the record breaking rain bombs that no forecaster caught. That broke many folks down there. Won’t be long until only the wealthiest can afford flood insurance and it probably won’t be for sale at all in the most vulnerable areas at any price.

    Louisiana Flood Seen Costing Up to $15 Billion, Mostly Uninsured

    https://www.bloomberg.com/news/articles/2016-09-09/louisiana-flood-seen-costing-up-to-15-billion-mostly-uninsured

    Louisiana flooding exposes uninsured to costly recovery

    http://www.nola.com/weather/index.ssf/2016/08/louisiana_flooding_insurance.html

    The consequences of denial and the humans addiction to cancerous growth is going to break the bank. Break techno industrial civilization then break the species.

  14. makati1 on Fri, 2nd Dec 2016 8:58 pm 

    Ap, you’re correct,as usual. DEBT is killing the Western world faster than Climate Change. Most seem to ignore that fact. All these dreams of future possibilities seldom, if ever consider the economic side of the problem. The debts will NEVER be paid.

    If you have ever had to go through a bankruptcy where you lost everything and had to start again during a recession, you know what I am talking about. Been there. Done that. Not fun. Wakes you up to what debt really means. It is a chain and a titanium steel collar around your neck. It means those people own you and everything you own. If you have debt. You are slave.

    I am free, after a lifetime of owing ‘the man’. It is a fantastic feeling to be truly free. Not many American can claim that feeling. Only the very, very young who have zero obligations or worries.

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