Canadian dollar sinks below 88 cents as Saudis cut oil to $77

[oilyfan]

Originally Posted by edslunch

Just doing my part to spread Christmas cheer. Chances of that scenario happening are next to nil

Next to nil?

[Bigtime]

Originally Posted by edslunch

The Saudis are playing a dangerous game here. If they keep the price low they could send some of the their OPEC partners such as Nigeria and Venezuela into chaos. Worse, if they do the same to Russia, Russia has the power to strike back.

Suppose Putin orders up a couple of subs to take out Saudi shipping terminals like Ras Tanura, crippling their ability to ship. World markets are thrown into chaos. Of course NATO retaliates, but wait, China can't allow both of it's main energy sources to go down..... Far fetched for sure, but when economies reach the tipping point anything can happen.

The ghost of Tom Clancy visited you in the night to tell you this right?

[edslunch]

Originally Posted by Bigtime

The ghost of Tom Clancy visited you in the night to tell you this right?

I'm lobbying to be his ghost writer

[chemgear]

http://www.bloomberg.com/news/2014-1...versupply.html


Saudi Arabia and the United Arab Emirates reiterated pledges to keep pumping the same amount of crude, blaming non-OPEC producers for the glut of oil that’s driven prices to the lowest in five years.

Suppliers from outside the Organization of Petroleum Exporting Countries should cut “irresponsible” output, U.A.E. Energy Minister Suhail Al Mazrouei said in Abu Dhabi yesterday. Even if non-OPEC producers were to offer cuts, OPEC probably wouldn’t follow suit, Saudi Oil Minister Ali Al-Naimi said. The two countries account for about 40 percent of OPEC supply.

[troutman]

My Dad (retired from petroleum career) said what the Saudis are doing is trying to prevent the USA from becoming less reliant on foreign oil. His theory was all over my head, but does this make any sense?

[ExiledFlamesFan]

Originally Posted by chemgear

http://www.bloomberg.com/news/2014-1...versupply.html


Saudi Arabia and the United Arab Emirates reiterated pledges to keep pumping the same amount of crude, blaming non-OPEC producers for the glut of oil that’s driven prices to the lowest in five years.

Suppliers from outside the Organization of Petroleum Exporting Countries should cut “irresponsible” output, U.A.E. Energy Minister Suhail Al Mazrouei said in Abu Dhabi yesterday. Even if non-OPEC producers were to offer cuts, OPEC probably wouldn’t follow suit, Saudi Oil Minister Ali Al-Naimi said. The two countries account for about 40 percent of OPEC supply.

No surprise here. The gulf oil states have some of the cheapest oil to produce and these countries have hundreds of billions of dollars in cash reserves. They'll simply wait it out while other oil producing counties collapse (Russia) and cut back production.

[edslunch]

Originally Posted by troutman

My Dad (retired from petroleum career) said what the Saudis are doing is trying to prevent the USA from becoming less reliant on foreign oil. His theory was all over my head, but does this make any sense?

Yes, it's all about market share which is threatened by new oil in the US among other things. If they can keep the price of oil lower than the cost of new shale oil then the US would stop bringing new oil on line. Whether there lives are specifically targeting the US vs. Russia and Iran is debatable but he latest quotes sure make it seem like they want the US to blink on overall production.

[polak]

How bad will it have to get until the US or Russia or Iran starts to consider threats?

[ExiledFlamesFan]

Originally Posted by polak

How bad will it have to get until the US or Russia or Iran starts to consider threats?

The US is doing fine. The economy is growing. Low oil and fuel prices are not a bad thing for the Americans as a whole. Sure it will devastate north Dakota and parts of Texas, but as a big picture economy these oil prices are good for the American consumer.

Just take a look at the s&p 500 index yearly growth. The Americans are certainly not as dependent as us on oil for economic growth.

Iran and Russia on the other hand...

[DownhillGoat]

Originally Posted by polak

How bad will it have to get until the US or Russia or Iran starts to consider threats?

Substantially worse than a few months of low prices I would imagine.

[SeeGeeWhy]

This market share defense talk is BS.

70% of Saudi production is burned domestically for power generation, desalination and transport fuel. 80% of what is exported goes to Asian refineries. 5% of what is exported goes to the US.

5% of 30% of their total production is not what you move mountains and potentially put global economies into chaos for.

The US's largest import source by far has always been Canada.

The nature of this market reality is this - the US is quickly becoming the world largest oil producer because of expanding shale oil exploitation. However, they cannot export a majority of that production due to their own laws. The short of it is that the US is becoming more self sufficient, but based on the facts above, this impacts Canadian producers far more than it does Saudi Arabia. Second, US oil demand is not growing because they do not manufacture the way they used to and the economy is still in a slow recovery. As opposed to China, who's demand is now larger than the US and still growing.

So... If this is indeed a play to control market share, it Would have to be pre-emptive in nature. Meaning, the US must be considering changing it's export laws which indeed would allow US production to threaten the Saudi's grip on the largest and fastest growing oil consumption market in the world.

But the thing that really makes me wonder is the fact that the Saudi crown invests in oil plays all over the world to get access to increased ownership in global production without depleting their domestic reserves unnecessarily. Why wouldn't the crown invest in the companies drilling the shale oil plays to accelerate their rapid decline and kill the entire field for good by encouraging it's short term exploitation? I know there are strong rules against foreign takeovers in the US energy business, but is partial ownership treated with the same scrutiny? And couldn't they flow the money through secondary vehicles to obscure where the funds are coming from? The book is coming out on the reserve potential of these shale plays, and the inexperienced operators are using fracturing systems that do not optimize the productivity or longevity of these wells. I believe it is a huge bubble and the sauds would be wise to encourage it's over development as opposed to deflating prices in order for the industry to cool down and get smarter about how it's going about it's business.

[4X4]

Originally Posted by SeeGeeWhy

This market share defense talk is BS.

70% of Saudi production is burned domestically for power generation, desalination and transport fuel. 80% of what is exported goes to Asian refineries. 5% of what is exported goes to the US.

5% of 30% of their total production is not what you move mountains and potentially put global economies into chaos for.

The US's largest import source by far has always been Canada.

The nature of this market reality is this - the US is quickly becoming the world largest oil producer because of expanding shale oil exploitation. However, they cannot export a majority of that production due to their own laws. The short of it is that the US is becoming more self sufficient, but based on the facts above, this impacts Canadian producers far more than it does Saudi Arabia. Second, US oil demand is not growing because they do not manufacture the way they used to and the economy is still in a slow recovery. As opposed to China, who's demand is now larger than the US and still growing.

So... If this is indeed a play to control market share, it Would have to be pre-emptive in nature. Meaning, the US must be considering changing it's export laws which indeed would allow US production to threaten the Saudi's grip on the largest and fastest growing oil consumption market in the world.

But the thing that really makes me wonder is the fact that the Saudi crown invests in oil plays all over the world to get access to increased ownership in global production without depleting their domestic reserves unnecessarily. Why wouldn't the crown invest in the companies drilling the shale oil plays to accelerate their rapid decline and kill the entire field for good by encouraging it's short term exploitation? I know there are strong rules against foreign takeovers in the US energy business, but is partial ownership treated with the same scrutiny? And couldn't they flow the money through secondary vehicles to obscure where the funds are coming from? The book is coming out on the reserve potential of these shale plays, and the inexperienced operators are using fracturing systems that do not optimize the productivity or longevity of these wells. I believe it is a huge bubble and the sauds would be wise to encourage it's over development as opposed to deflating prices in order for the industry to cool down and get smarter about how it's going about it's business.

My first thought after reading this is that if everything you've said is correct, maybe the Saudis are concerned with the US becoming self sufficient, because it would mean that Canada would need a new customer. That'd probably be that Asian market where, according to your numbers, 24% of their oil goes.

I'm not claiming this is the case. I'm not an oil guy. Just looking a couple moves ahead, based on the quoted post.

[nik-]

I would assume that purchasing oil from Canada is pretty much part of "self sufficiency" in the eyes of American policy makers. We're not exactly typical of oil producing countries in that we're not a giant bag of #### run by #######s.

[Flash Walken]

I think it's more likely that the wanted by product of the reduction in oil price is that it hurts Iran and Russia's ability to aid Syria.

[ExiledFlamesFan]

Saudi's cool with $20/barrel oil:

http://www.telegraph.co.uk/finance/n...-possible.html

"Whether it goes down to $20, $40, $50, $60, it is irrelevant," he said in an interview with Middle East Economic Survey (Mees).

I'm interested to see how low it'll go. I'm still confident oil prices will start rising in the spring but we're already at $~55/barrel.

[GP_Matt]

This seems to be a debate about which benefit the Saudis are enjoying the most.

• Lower prices hurt Russia
• Lower prices hurt Iran
• Lower prices reduce exploration and development spending which leads to
• higher prices in the long run
• Lower prices prevent export pipelines in Alberta from being built
• Lower prices prevent Russian pipelines to China from being built
• Lower prices prevent/delay a switch to renewable products
• Lower prices encourage consumption and could lead to an expanded market in the future

[HockeyIlliterate]

Originally Posted by SeeGeeWhy

Meaning, the US must be considering changing it's export laws which indeed would allow US production to threaten the Saudi's grip on the largest and fastest growing oil consumption market in the world.

There have been numerous suggestions (all made relatively recently) that Congress change its oil export laws, so I'd say that the US is certainly "considering changing its export laws."

ETA:

In fact, a Congressman may have recently introduced such a bill, even though it "has no hope of passing" at the moment. http://news.yahoo.com/congressman-in...205710489.html

[SeeGeeWhy]

All very good points, gents.

[gunnner]

I think the variety of theories maybe shows there is more than one reason for the Saudis to drive down oil prices or 12-18 months.
1)Curb Russian production
2)Curb U.S shale production
3)Tick off Iran
4) Maybe $50-70/barrel oil will help bring back some stronger long term growth to Europe/China/East Asia, which would benefit the Saudis in the long run.

It could be one of these or all of these reasons.

[edslunch]

The funny thing in all this is that the Saudis aren't actually doing anything to make oil fall - it's purely market forces at work. Ironically they're catching crap for NOT manipulating the market like they usually do.