Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Saudi Arabia Just Delivered Another Strike in the “Oil War”

Commodities / Crude Oil Apr 10, 2015 - 09:46 AM GMT

By: Money_Morning

Commodities

Dr. Kent Moors writes: Saudi Arabia just sent the most powerful signal yet it means business in the “Oil War.”

On Tuesday, oil minister Ali al-Naimi revealed Saudi oil production jumped in March to 10.3 million barrels a day.

That marked an increase of 700,000 barrels per day from February, or the biggest ramp in production since November 2011. That figure is now expected to remain around 10 million barrels for some time.


To add some intrigue, the minister also mentioned the kingdom was prepared to “improve prices,” but only if producers that are not members of OPEC decided to join in the effort.

Since then, oil prices have paused from their steady upward climb.

Brent closed yesterday in London at $55.79; West Texas Intermediate (WTI) in New York at $50.67. Both were down over 5% for the day.

So what are the Saudis really up to?

Here’s my take on the kingdom’s latest salvo…

The Start of a Long Drawn Out Struggle

Just last November, the Saudis “bullied” OPEC into a decision to maintain production, sending prices lower. This deviated from earlier OPEC tactics that would have cut oil exports in order to maintain higher prices.

The decision helped propel oil into the final stages of a downward spiral that saw global crude prices decline by some 60% from last summer’s triple-digit highs.

Not all OPEC members were enamored with the move.

While Saudi Arabia, Kuwait, and the Unites Arab Emirates have robust economies that could sustain the pricing dive, other members certainly do not. In these countries any semblance of a central budget immediately went out the window.

Venezuela is now in free fall with intensifying unrest and accelerating inflation, and all signs point to it becoming a textbook example of a failed state. I estimate that Caracas would need oil prices to approach $150 a barrel in order to have any semblance of a budget. While oil is going to move upward, it’s not going to happen soon enough for this South American state.

Nigeria, Iran, and Ecuador (the smallest of the OPEC producers) are also in dire straits. My estimates here are a need for a price of $140 a barrel for the national budgets of the first two and $110 for the third.

Basically, four basket cases are running at cross purposes with the Saudi decision to raise its own production. This puts additional downward pressure on oil prices and increasing weight on already pummeled budgets.

But the battle against OPEC’s stragglers isn’t the only front in the Saudi “Oil War.” Moves against Russia and the U.S. are also causing waves in the oil sector.

Russia Got Burnt… But the U.S. Proves Tougher

As I have noted many times here in OEI, the global energy demand picture is moving decisively to Asia through 2035. Asia is the major market for both Saudi and OPEC exports. And Russia has been standing in Saudi Arabia’s way.

Moscow has completed its major East Siberia-Pacific Ocean (ESPO) export pipeline with an intention to move increasing consignments of crude to Asia. That crude would be cheaper and of better quality than the higher sulfur content Saudi oil going to Asia.

The Saudi solution to cut Asian pricing and hold steady on OPEC production drove the overall global price down. The plan was successful in wreaking havoc in the Russian oil sector, contributing to a rapid depreciation of the ruble and a significant budget crisis (the current Russian budget anticipated an oil rate of $80-85 a barrel).

Rather quickly, Russia reduced forward contract commitments to Asia (where it was now too expensive to move its oil at such low prices) and the Saudis had achieved their first objective.

Mission accomplished, Aramco announced on Monday that it will now raise export prices on Asia-bound crude by an extra 30 cents per barrel.

The second Saudi objective – prompting American producers to reduce volume – has become more elusive.

In its drive to control market share, the Saudis have created one unanticipated consequence. The traditional “call on OPEC” (the phrase used to determine how much exports the cartel releases each month) has been replaced by a “call on shale.”  U.S. producers are now controlling the international availability of product. This is a battle the Saudis can’t win.

So Why Is Saudi Arabia Increasing Production?

What began as a policy seeking to control market share for the cartel is now morphing into the Saudis controlling that share at the expense of other OPEC members.

Rifts in the cartel’s resolve have been appearing, especially among those members we mentioned above that are less able to withstand continuing low prices. Exports in excess of member nations’ monthly quotas have been showing up in the market.

Not only does this serve to further depress the actual price (since increasing supply without a corresponding rise in demand has a way of doing that), it likewise indicates that some nations have no choice but to meet collapsing budgets with whatever they can.

Nonetheless, the Saudis are getting tougher.

In a move reminiscent of the mid-1980s – when Riyadh opened the spigot and flooded the international market to offset rising excess exports from other OPEC members – the cartel’s dominant producer is playing disciplinarian.

The Saudis may improve the pricing outlook should non-OPEC countries such as Russia and the U.S. reciprocate. And I have no doubt that the prices on oil will continue an albeit jagged climb.

But there is also another message just below the surface. This one is directed to other OPEC members:

Get in line and bite the bullet, or we will do it for you… and take some of your market position in the process.

Source :http://oilandenergyinvestor.com/2015/04/saudi-arabia-just-delivered-another-strike-in-the-oil-war/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in