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Fuel Freedom Staff

The Atlantic: Why the U.S. still needs Saudi Arabia

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The Atlantic’s Matt Schiavenza has some pointed commentary on the longtime U.S.-Saudi alliance, arguing that the United States needs the Middle East kingdom “more than ever.”

Following the death of King Abdullah last week at age 90, following a lung infection, President Obama cited his “enduring contribution to the search for peace” in the region. Secretary of State John Kerry said he was a “man of wisdom and vision.”

Schiavenza then lists the ways in which Saudi policy undermines the American praise, including the lack of rights of women, and the case of blogger Raif Badawi, who was sentenced to 1,000 lashes and 10 years in prison for defending atheism.

Schiavenza writes:

Contrary to President Obama’s statement, Saudi Arabia’s role in brokering Middle Eastern peace has, at best, been unhelpful. King Abdullah bitterly opposed Washington’s support of pro-democracy protesters in Egypt and urged President Obama to use force to preserve Hosni Mubarak’s dictatorship. Since Abdel Fattah al-Sisi assumed the country’s leadership in 2013, Riyadh has helped finance his brutal suppression of the country’s Muslim Brotherhood. Saudi Arabia has also resisted the rise of Shia movements in the region out of fear that Iran, their main rival, will gain influence. When Shia protesters threatened the Sunni dictatorship in neighboring Bahrain, Saudi Arabia dispatched its military to suppress the uprising. Riyadh’s support of Syrian rebels, too, has backfired: Islamic State fighters have benefited from Saudi money and weapons.

The reason the United States continues to “put up with” Saudi Arabia, the writer contends, is oil. And despite ramped-up production in the U.S. shale-oil fields, the U.S. will continue to need Saudi oil. Currently there’s a glut that might worsen, since Abdullah’s successor, his half-brother Salman bin Abdul Aziz, appears unlikely to reduce oil production to stem the drop in price. Right now the U.S. produces about 9 million barrels of oil a day, comparable with Saudi output.

But the kingdom, which is the leading oil-producer in OPEC (which controls 40 percent of the world’s oil supply), is “well-positioned to survive a sustained drop in the price of oil,” Schiavenza writes, adding:

Riyadh generally needs oil to trade at $80 a barrel in order to balance its budget. But with $750 billion stashed away in reserve, the kingdom faces little pressure to reduce supply and raise the price. In addition, Saudi Arabia and fellow OPEC members Kuwait and the United Arab Emirates have proved reserves of 460 billion barrels. The United States, by contrast, has proved reserves of just 10 billion—and the U.S. Energy Information Agency forecasts that American shale oil production will plateau in 2020.

Fuel Freedom Staff

Saudis might actually increase oil output

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Saudi Arabia isn’t cutting production anytime soon, despite lobbying from some of the 12-nation cartel’s members to try to stem falling oil prices. In fact, the Saudis might actually boost output to gain new customers.

Reuters reported that Saudi Arabia’s oil minister, Ali al-Naimi, said it’s not in OPEC’s interest to cut production quotas no matter how far prices fall:

After a weekend of comments from several Gulf OPEC members reiterating their intent not to intervene in oil markets, despite oil prices that have halved since June, Ali al-Naimi told the Middle East Economic Survey it was “not in the interest of OPEC producers to cut their production, whatever the price is” — his starkest comments yet.

Naimi also said the Saudis might boost output instead to grow their market share and that oil “may not” trade at $100 again. “The best thing for everybody is to let the most efficient producers produce,” he told a conference in Abu Dhabi at the weekend.

Olivier Jakob, an oil analyst at Petromatrix OIl in Switzerland, commented in an earlier version of the Reuters story:

“We are going down because you have some OPEC ministers who come every day making statements trying to drive the market down. … They come every day to convey the message that they are not doing anything to restrict supplies and that they basically want oil prices to move lower to reduce production in the U.S.”

Brent crude dropped $1.33, to $60.05.

Fuel Freedom Staff

OPEC: Oil demand next year will be lowest in a decade

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OPEC cut its forecast for global demand Wednesday, expecting that demand in 2015 will be at the lowest level since 2004.

Reuters reports that the cartel, in its monthly report, said it expects worldwide demand for its oil to be 28.92 million barrels per day, about 1 million bpd less than the 12-nation group is producing now.

Last month OPEC’s decision to keep output the same — about 30 million bpd — sent prices falling even more precipitously. Brent crude is down about 40 percent overall since June, when it was about $110 a barrel.

If the cartel produces 28.92 bpd next year, that’ll be its lowest output since it produced 28.15 million bpd in 2004.

Saudi Arabia, the cartel’s largest producer, gave no sign it’s willing to cut production levels to try to prop up the price. As Bloomberg reports:

“Why should I cut production?” [Saudi oil minister] Ali Al-Naimi said in response to reporters’ questions today in Lima, where he’s attending United Nations climate talks. “This is a market and I’m selling in a market. Why should I cut?”

Fuel Freedom Staff

Oil falls again, bank says floor could be as low as $43

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The price of Brent crude dropped $1.77 a barrel on Monday, to $67.30. Earlier in the day it had hit $66.77, its lowest mark since October 2009.

BBC News has coverage here, and CNBC here.

Traders reacted to a report from Morgan Stanley citing fears of a global oversupply. According to BBC:

Morgan Stanley predicted that Brent would average $70 a barrel in 2015, down $28 from a previous forecast, and be $88 a barrel in 2016.

The investment bank also said that oil prices could fall as low as $43 a barrel next year. Analyst Adam Longson said that markets risked becoming “unbalanced” unless the OPEC producers’ cartel decided to intervene.

Fuel Freedom Staff

The Economist: Benefit of cheap gas depends on ‘sheiks vs. shale’ tussle

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Cheap gasoline provides an overall economic benefit, The Economist writes in an article titled “Sheikhs vs. shale.”

The price drop of some $40 since June (from above $110 to about $70) has shifted “some $1.3 trillion from producers to consumers. The typical American motorist, who spent $3,000 in 2013 at the pumps, might be $800 a year better off—equivalent to a 2% pay rise.”

But will oil stay cheap? That’s the big question. How long the economic benefit of depressed prices lasts depends on:

” … a continuing tussle between OPEC and the shale-drillers [in the United States]. Several members of the cartel want it to cut its output, in the hope of pushing the price back up again. But Saudi Arabia, in particular, seems mindful of the experience of the 1970s, when a big leap in the price prompted huge investments in new fields, leading to a decade-long glut. Instead, the Saudis seem to be pushing a different tactic: let the price fall and put high-cost producers out of business. That should soon crimp supply, causing prices to rise.”

In short, gasoline is cheap now. We need to ensure it stays cheap.

Read more at FuelFreedom.org and PUMPtheMovie.com.

(Photo credit: Dan Weinbaum, posted to Flickr.com)

 

Fuel Freedom Staff

Cobb: Narrative of American oil self-sufficiency ‘is about to take a big hit’

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Kurt Cobb, who writes about energy and the environment, has a piece in The Christian Science Monitor about how OPEC is targeting the U.S. shale-oil “revolution.’

Cobb says it was folly for some proponents of U.S. drilling to think that oil would remain above $100 a barrel indefinitely. At $70, U.S. operations aren’t profitable enough to remain at that output level.

Cobb begins:

To paraphrase Mark Twain: Rumors of OPEC’s demise have been greatly exaggerated.

Breathless coverage of the rise in U.S. oil production in the last few years has led some to declare that OPEC’s power in the oil market is now becoming irrelevant as America supposedly moves toward energy independence. This coverage, however, has obscured the fact that almost all of that rise in production has come in the form of high-cost tight oil found in deep shale deposits.

The rather silly assumption was that oil prices would continue to hover above $100 per barrel indefinitely, making the exploitation of that tight oil profitable indefinitely. Anyone who understood the economics of this type of production and the dynamics of the oil market knew better. And now, the overhyped narrative of American oil self-sufficiency is about to take a big hit.

Fuel Freedom Staff

Economist predicts ‘barbarity’ and ‘looting’ in Venezuela

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The oil price slide has hit some countries much harder than others, and cracks already are beginning to appear in Venezuela’s socioeconomic system.

As NBC News reports, shortages of basic products, like toilet paper, toothpaste and medical supplies, have worsened as the price of oil has plummeted. The South American country, which is an OPEC member nation, pleaded with the cartel to reduce output to stabilize prices, but OPEC last week announced it would maintain production levels.

Venezuela, the world’s 12th-largest oil producer, needs oil to be about $200 a barrel to balance its budget, one analyst says. There have been sporadic protests over the shortages, and experts say that if the economy continues to falter and President Nicolas Maduro’s government has to raise taxes or eliminate gas subsidies for citizens, there could be unrest similar to the “Caracas disaster” of 1989, when falling prices brought on riots in which hundreds of people were killed.

The NBC story goes on:

Experts predict the situation in Venezuela will worsen as early as the first half of 2015.

“It will be a year of extreme scarcity,” Venezuelan economist Angel Garcia Banchs said. “What’s coming to Venezuela is chaos that will probably lead to barbarity and people looting. “

Fuel Freedom Staff

Hofmeister interviewed on NBC’s ‘Meet The Press’

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John Hofmeister, a Fuel Freedom board advisor and the former president of Shell Oil Co., appeared on NBC’s “Meet the Press” on Nov. 23 to discuss the falling price of oil.

Watch a clip here:

Watch the entire “MTP” program here (Hofmeister comes on about the 35:20 mark), and read the transcript here.

Hofmeister, appearing along with author Daniel Yergin, was asked by host Chuck Todd whether lower-priced oil amounted to an extra sanction against Russia and Iran, which already are burdened by sanctions — Russia for its actions in Ukraine and Iran for its pursuit of a nuclear program.

Hofmeister replied:

It is. It’s an extra sanction because it reduces their economic clout. Well, we’ve seen what happened to the Russian ruble. Iran is not able to subsidize many of its programs.

CHUCK TODD:

They need to have oil to be at $100 or more a barrel for them to balance their budget.

JOHN HOFMEISTER:

Yeah, the estimates are Russia needs well over $100, Iran even more. And the consequence of that is the people of Russia, the people of Iran will suffer as a consequence of the low oil price. That’s why the panicked feeling within the OPEC meeting coming up on Thursday.

As we know, at that meeting, OPEC decided not to cut production quotas, effectively ensuring that oil prices would not stabilize in the near future.

As The Wall Street Journal reports, Saudi Arabia, OPEC’s largest producer, now believes that oil will settle at about $60, down from about $110 over the summer.

Hofmeister said that, despite the worldwide surplus of oil, the U.S. should keep pumping, in anticipation of demand coming back:

… the reality is, we will be short of oil in the world over the next several years as global growth exceeds oil production. So we need all the production we can have. We need all the infrastructure we can build to make sure the U.S. is taken care of.

Hofmeister, author of the book Why We Hate the Oil Companies, has much more to say about oil in the Fuel Freedom-produced documentary PUMP. The film is now available for pre-order on iTunes. Visit PumpTheMovie.com to watch a trailer and learn more.

Fuel Freedom Staff

Oil makes biggest one-day price jump in 2 years

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Have we seen the bottom of the great oil-price plunge of 2014?

Experts say not yet. But oil prices rose sharply Monday, making their biggest jump in two years: Nymex crude-oil futures rose 4.78 percent, to $69.31 a barrel. And Brent crude, the international benchmark, rose 3 percent, to $72.54. It had been down as low as $67.53 earlier in the day, the lowest it’s been since July 2009.

Oil is down about one-third since June, and late last week the commodity plunged even more precipitously after OPEC announced it would not stem the price drop by ramping up production among its 12 member nations. But some analysts saw Monday’s jump as merely profit-taking after last week’s sell-off.

From The Wall Street Journal:

… many market watchers were skeptical that Monday’s gains signaled that oil prices had reached their bottom, pointing to global supplies that continue to overwhelm demand.

Many investors and analysts believe with OPEC on the sidelines it will take cutbacks by companies in the U.S. and Canada to bring supply and demand in line and pull the market out of its swoon. That day may not come until deep into 2015 or beyond, some analysts say.

From Reuters:

“The market clearly got a little overdone to the downside and now it’s coming back up, proof that there will be a response from the shale patch to these low prices,” said John Kilduff, partner at energy hedge fund Again Capital in New York. “Several shale companies are already reporting capital expenditure reductions next year as their profit margins get thinned out.”

On Wall Street, shares of shale energy companies such as Denbury Resources (DNR.N) and Newfield Exploration (NFX.N) took a beating for a second straight session, down about 5 percent each in late afternoon trade.

Data reviewed by Reuters on Monday showed the new low-price environment for oil might have started affecting U.S. shale production, with a 15 percent drop in permits issued for new shale wells in October.