Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Tag Archives: OPEC

Saudi Arabia Capitulates, Cuts Oil Prices

This article first appeared at The McAlvany Intelligence Advisor on Monday, October 65, 2014:

Saudi Arabia’s announcement last week that it was cutting prices to its Asian, European, and US customers by between $.40 and $1.00 a barrel represents a major capitulation and recognition of reality. It also represents a major departure in its role as the leading member of the OPEC cartel, proving once again that every cartel eventually blows up as its members seek their own interests over those of the cartel.

For decades, the role of the OPEC cartel has been to protect the cash flow of its members by manipulating oil prices through changes in production levels. If prices got too high and demand started falling as a result, the cartel would increase the supply of crude to the world markets. If prices got too low, on the other hand, it would gladly restrict those supplies to bring prices back up to a level acceptable to the cartel.

Those days now appear to be over.

By bringing its prices down below prices charged by OPEC member Qatar and non-OPEC member Oman, Saudi Arabia is setting the stage for an international oil price war. Futures traders, who have gotten hammered as crude oil prices have dropped almost 20% since June, are holding their collective breath to see if Qatar and Oman jump ship and reduce their prices as well. Energy analysts like John Kilduff with Again Capital are estimating that crude oil prices will consequently drop to the low $80s, while Fadal Gheit at Oppenheimer is predicting prices dropping into the low $70s. Gheit explained:

It’s both supply and demand. It’s basically the perfect storm that brought all these prices down. You have plenty of supply, which you never thought possible, and all of a sudden demand is shrinking: China is slowing down [and] Europe never recovered.

Gheit is a realist. He stated what every observer already knows: the OPEC cartel “is held together by scotch tape. They hate each other.” Now that the leader of the pack has decided to leave the pack, it’s going to be much easier for other OPEC members to join the fray and drive prices down even further.

Part of that perfect storm is the shale oil fracking revolution that has driven crude oil production in the United States to levels not seen in 50 years. Part of it is Russia’s increase in crude oil production to nearly post-Soviet era records as well. In addition, production from Kurdistan over the next 15 months is expected to more than provide China’s increased demands for energy, thus assuring that world supply will continue, in the short run at least, to outpace world demand.

Saudi Arabia’s admission of reality is already having welcome impacts. Gas prices in the United States have fallen to $3.32 a gallon on average, with more than half the states having at least one gas station selling gas for less than $3 a gallon. It’s also pulling the legs out from under the foreign policy justification of adventurism abroad in order to protect the supply of energy which America is now almost capable of providing all by herself.

As prices decline, consumers are able to redirect spending into other areas, helping along the modest economic recovery from the Great Recession. It may also prove to skeptics that, once again, Warren Buffett is right. His much ballyhooed announcement of his purchase of Van Tuyl Group, the nation’s largest US auto dealership chain, should help his company, Berkshire Hathaway, ride the wave of cheaper gas and the consequent willingness of customers to replace their aging fleet of vehicles with new ones.

It is possible, however, that prices may drop too far, causing capital that is currently flooding into the energy exploration business to go elsewhere where it will be treated better in the years to come. As Stephen Leeb, a writer at Forbes, put it: “It takes energy to get energy.” In the early 1950s, it took the energy from one barrel of oil to harvest five barrels. Today, because of improvements in technology, it takes about one barrel to produce nine in conventional fields.

But in unconventional fields – i.e., shale oil fracking – it takes the energy of one barrel of oil to discover, develop, and lift just four barrels, which, according to State University of New York Professor Charles Hall, isn’t enough to keep America’s modern industrial society operating at peak efficiency. The proper ratio, according to Hall, is that one barrel of energy must generate at least five barrels of new production, preferably more.

If the Old Farmers Almanac’s prognostications are correct, the US should enjoy another relatively mild winter, reducing chances of a spike in demand that would drive crude oil prices higher. For the time being then, Saudi Arabia’s capitulation and potential blowing up of OPEC will be enjoyed by American drivers and consumers. In the longer run, however, capital may be redirected away from the oil patch to more profitable areas if the price of crude stays too low, too long. In the meantime, America will once again enjoy the view from the catbird seat.

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Sources:

Commerzbank: ‘OPEC Appears to Be Gearing Up for Price War’

CNBC: Saudi signals price skirmish as oil heads to bear market

Bloomberg: Brent Oil Falls to Lowest Since June 2012 on Ample Supply

The Old Farmers Almanac: 2014–2015 Winter Weather Forecast Map (U.S.)

Forbes: Dangerous Times As Energy Sources Get Costlier To Extract

Auto Blog: Warren Buffet buys largest private US car dealership chain

Saudi Arabia Cuts Oil Prices, Could Spark Price War

This article first appeared at TheNewAmerican.com on Friday, October 3, 2014:

In a surprise move this week, Saudi Arabia cut the price of its flagship Arab light oil, which it sells mostly to its Asian customers, by one dollar a barrel. It also cut prices to its customers in the United States and Europe by $.40 a barrel. This brings Saudi Arabia’s prices below those offered by OPEC member Qatar and non-OPEC member Oman. Oil futures traders are holding their breaths, waiting for Qatar and Oman to cut their prices in response, setting off a full-scale oil price war.

The simple economics of supply and demand have already driven the price of oil down by almost 20 percent since June, and a number of traders and other observers are suggesting those prices have

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Fracking Revolution: U.S. Replaces OPEC as World’s “Swing Producer”

This article first appeared at TheNewAmerican.com on Wednesday, October 1, 2014: 

 

After reviewing the numbers from America’s oil and gas patches, Per Magnus Nysveen of Rystad, an international oil consultancy in Norway, declared that the United States is now taking on the role of “swing producer” that used to be played by Saudi Arabia and other members of OPEC, the oil producers’ cartel.

Those numbers are impressive. Fracking technology has led to a 65-percent increase in U.S. crude oil output in just the last six years and, according to Wood Mackenzie,

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The Rise of “Saudi America”

This article first appeared at The McAlvany Intelligence Advisor on Friday, December 6th, 2013:

 

Back in early February Citigroup apologized for missing the huge explosion of oil and natural gas occurring in Texas, North Dakota, and elsewhere. Its report, entitled “Energy 2020: Independence Day” began:

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“Saudi Texas” is changing the world’s economic and political landscape

The virtual explosion in Texas’ production of natural gas and oil, thanks to fracking, caught even Citigroup off-guard. In February it apologized for so widely missing the mark in its report the previous year entitled “Energy 2020: Independence Day”:

Momentum toward North American energy independence accelerated last year [2012] well beyond the wildest dreams of any analyst and

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US Now Produces More Oil than it Imports for the First Time since 1995

When Brantley Hargrove noted in the Dallas Observer on Thursday that the US produced more oil than it consumed during the last week in May (for the first time since February, 1995) he was awfully quick to give nearly all the credit to Texas. But he was proud, nevertheless:

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Gasoline Prices Set to Decline, says the Energy Information Administration

Noting that gasoline prices have risen by 45 cents per gallon since the first of the year, the U.S. Energy Information Administration (EIA) said it’s seeing signs of easing in those prices in the near future. It reiterated various causes of the rise in prices (currently $3.75 per gallon at the pump nationwide), such as

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Wolfcamp May Dwarf Eagle Ford and Bakken

English: Location of the Spraberry Trend in Te...

Location of the Spraberry Trend in Texas, with major and nearby cities. All data on this map is in the public domain; created by me in ArcGIS 9.3. (Photo credit: Wikipedia)

The Eagle Ford formation in Texas is estimated to hold 3 billion barrels of recoverable oil, thanks to fracking and the free market. North Dakota‘s Bakken formation is estimated to hold 18 billion barrels of recoverable oil, thanks to fracking and the free market. But, as noted at mysanantonio.com,

Get ready for what’s happening in West Texas, where oil and gas production is  ramping up in shale layers such as the Wolfcamp in and around Midland.

Remember that name: Wolfcamp. For the record, it’s also called the Spraberry Trend, but Wolfcamp is the name that’s catching on. Ken Morgan, director of the Texas Christian University Energy Institute, said, “We’re getting thousands and thousands of feet of pay zone [there]. It’s like the Eagle Ford on steroids. [We] haven’t even begun. We’re just in the toe of this thing.”

Just how big is Wolfcamp?

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Changing Minds on the Sugar Tariff

Sugar

Sugar (Photo credit: Wikipedia)

Economist Donald Boudreaux has a way with words, but sometimes he uses them as grenades rather than cinnamon rolls. He got upset with Florida Rep. Tom Rooney‘s remarks when he tried to justify tariffs and dressing his arguments up to look “conservative.” This is what ticked Boudreaux off:

Like most conservatives, I don’t like subsidies or government intervention in markets. But I do like U.S. sugar policy, which, according to some, runs counter to these core conservative ideals.

America’s sugar policy has my support and the support of so many other conservatives because it’s the best line of defense we have against an OPEC-like market that threatens our food security and 142,000 U.S. jobs…

The policy we have chosen — placing tariffs on imported sugar — guarantees imports into the U.S. market (America is the world’s biggest sugar importer) but keeps subsidized foreign oversupplies from bankrupting U.S. producers. And, it operates without a federal budget outlay, which means it doesn’t cost taxpayers a dime.

True, this policy isn’t perfect. But it’s necessary. Until Brazil and other countries stop distorting the market with excessive subsidies, our no-cost policy is the least intrusive way to keep 142,000 Americans off unemployment rolls and prevent America from becoming dependent on the OPEC of sugar.

First, I checked Rooney’s voting record vis-à-vis the Constitution and it’s a forgettable 73.  What that rating tells me is that this guy needs help. He is muddled in his thinking, but perhaps he is worth saving rather than

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America’s Exploding Energy Reserves Also Exploding Myths

Oil Tanker

Oil Tanker (Photo credit: nikonlarry)

The latest report from the U.S. Energy Information Agency (EIA) not only confirmed the explosive growth in the country’s proven reserves of oil and natural gas, it also shattered popular myths about America’s decline:

Proved reserves of U.S. oil and natural gas in 2010 rose by the highest amounts ever recorded since the U.S. Energy Information Administration (EIA) began publishing proven reserves estimates in 1977.

Net additions to proved reserves of crude oil plus lease condensate in 2010 totaled 2.9 billion barrels, surpassing the previous high of 1.8 billion barrels added in 2009 by 63 percent …

Net additions of wet natural gas in 2010 totaled 33.8 trillion cubic feet (Tcf), nearly 17 percent higher than the previous record of 28.8 Tcf, also added in 2009. [Emphases added.]

“Proved reserves” are defined as “those volumes of oil and natural gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.” In other words, no hype here. This is the real deal.

And notice, please, that this is for the year 2010. The report for 2011 won’t be out until the spring of 2013 when it is expected that

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Harvard Senior Fellow: Peak Oil Is History

Abu Dhabi skyline

With the publication of his careful study, “Oil: The Next Revolution,” internationally respected economist and senior fellow at Harvard University Leonardo Maugeri has persuasively buried the theory of “peak oil” beneath 75 pages of evidence to the contrary. He wrote:

Contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. This could lead to a glut of overproduction and a steep dip in oil prices….

After adjusting for risk factors…net additional production capacity by 2020 could be 17.6 mbd [million barrels per day], yielding a world oil production of 110.6 mbd by that date….

This would represent the most significant increase in any decade since the 1980s.

At present total world production of oil is estimated at 73 mbd, and so if Maugeri is correct, that 110 mbd production will be 50 percent higher than today. That will confirm Maugeri’s prediction this “could be a paradigm-shifter for the oil world.”

Maugeri’s credentials are impressive. For 10 years he was the senior economic advisor to

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Rising Oil Production in Alberta: More Evidence Disproving Hubbert’s Peak

English: Alberta, Canada Français : Alberta, C...

The latest report from the Calgary Herald (Alberta, Canada) was nothing but good news: The steadily declining production of light oil from 2002 to late 2010 has reversed itself completely and is now not only proving the power and principles of a free market but “will change the way we think about oil, with many weighty consequences…” says blogger Peter Tertzakian. The graph he provided here shows Alberta’s production declining by about 16,000 barrels per day (B/d) every year since 2002, dropping to just over 300,000 B/d in late 2010. Now, thanks to new capital, new technology, and new enthusiasm, production is close to 400,000 B/d. It also “could heighten the blood pressure of a few peak oil theorists,” said Tertzakian.

He refers to the theory first offered by M. King Hubbert in 1956 that claimed that oil production in the United States would reach its peak between 1965 and 1970 and begin to decline thereafter. It was based upon the assumption that the amount of oil reserves is fixed and that it is analogous, according to peak theory supporter Colin Campbell, to a glass of beer: “The glass starts full and ends empty, and the faster you drink it, the quicker it’s gone.”

From that theory, Hubbert then claimed that this would drastically alter life in the United States, predicting chaos, war, starvation, economic decline and possibly even the extinction of mankind.

As Daniel Yergin (Pulitzer Prize-winner for his book The Prize: The Epic Quest for Oil, Money and Power) noted in the Wall Street Journal, this prediction of the “end of the world as we know it” was one of many such predictions, each one of which never came true. “Hubbert’s Peak” moved from the 1970s to 2005 and then to 2011, and is now expected sometime before the year 2020. But it’s all based on one primary faulty assumption: that the

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American Oil Development Undermines Green Movement, OPEC

Oil Derrick

The September 15 report from the National Petroleum Council expressed surprise at how much has changed just since their “Hard Truths” report of 2007 that domestic energy development was falling behind escalating demand.

The “Hard Truths” report stated that although “the world is not running out of energy resources…there are accumulating risks to continuing expansion of oil and natural gas production…[which] create significant challenges to meeting projected total energy demand.” As a result, the concept of “Energy Independence” is “not realistic in the foreseeable future” and therefore “the United States must moderate the growing demand for energy.”

In NPC’s letter to Secretary of Energy Steven Chu introducing the latest study, chairman James Hackett said

Extraordinary events have affected energy markets in the years since the NPC reported on the “Hard Truths” about energy in 2007. That study concluded that the world would need increased energy efficiency and all economic forms of energy supply.

This is still true today, but since then,

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Trump in New Hampshire: Undecided on Presidential Run

Donald Trump

Image by Gage Skidmore via Flickr

Sounding very much like a declared candidate for the Presidency, Donald Trump gave a rambling rehash of his positions on various issues to a small but supportive crowd today at the Nashua, New Hampshire, Chamber of Commerce.

Most of his remarks covered familiar territory: the Obama birth certificate issue (now dead), OPEC’s insensitivity, China’s intransigence, and Colombia’s abuses. He remains persuaded that

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Donald Trump’s Ideology

Donald Trump

Image by Gage Skidmore via Flickr

When potential Presidential candidate Donald Trump was asked by George Stephanopoulos, host of ABC’s “Good Morning America”, what he would do, as President, about soaring gasoline prices, he replied:

Look at what’s going on with your gasoline prices. They’re going to go to $5, $6, $7 and we don’t have anybody in Washington that calls OPEC and says, “Fellas, it’s time. It’s over. You’re not going to do it anymore.”

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Many of the articles on Light from the Right first appeared on either The New American or the McAlvany Intelligence Advisor.