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

Venezuela’s Welfare State Collapsing Along with Oil Prices

This article first appeared at The McAlvany Intelligence Advisor on Monday, December 29, 2014:

 

As oil prices have dropped, so has Venezuela’s revenue stream that supports its welfare state. Ninety-five percent of Venezuela’s export earnings come from crude oil, and the industry makes up one quarter of the country’s gross domestic product. With oil prices setting new lows last week, Venezuela’s economy, already on the ropes, is set to descend into chaos, anarchy, and looting. The decision by Saudi Arabia to continue to pump in order to maintain its market share reveals not only the inherent inability of any cartel to maintain itself over time, but also the inability of a welfare state to sustain itself without outside help.

With the world’s largest oil reserves, surpassing those even of Saudi Arabia, an uninformed observer would be unable to explain how a country as richly blessed with natural resources as Venezuela could go broke,

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Collapse in Oil and Natural Gas Prices Hitting OPEC the Hardest

This article first appeared online at TheNewAmerican.com on Monday, December 29, 2014: 

On November 17, gas prices had dropped to $1.9...

As prices for crude oil and natural gas continued their precipitous fall over the last five weeks, most commentators have been focusing on the impact — real or predicted — on the oil and gas industry in the United States. Little noticed, however, was the report from the U.S. Energy Information Administration (EIA) about how those declines are likely to affect OPEC.

OPEC’s total revenues, which hit an all-time high of $900 billion in 2012, are expected to decline by half next year, to just $446 billion. And that projection is based on the assumption that oil prices will average

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Gas Prices: How Much Lower and Longer?

This article first appeared online at TheNewAmerican.com on Friday, December 5, 2014: 

On November 17, gas prices had dropped to $1.9...

It made headline news when a OnCue Express station in Oklahoma City dropped its price for regular unleaded gasoline to $1.99 gallon on Wednesday. What didn’t make the headlines is what happened next: Drivers seeking to save a few pennies created long lines at OnCue, and so another station down the street, responding to the competition, cut its price to $1.98 a gallon. By the end of the day, another station located in nearby Moore, Oklahoma, cut its price to $1.95 a gallon. 

Gas wars are back, helping consumers and providing living, breathing proof that, despite everything, the free market still works. 

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Crude Oil Price Declines Reveal Who’s Swimming Naked

This article first appeared at The McAlvany Intelligence Advisor on Wednesday, December 3, 2014: 

Ali Al Naimi

Ali Al Naimi

One of the most famous homespun quotes Warren Buffett ever uttered is this: “Only when the tide goes out do you discover who’s been swimming naked.” With the decline in crude oil prices of nearly 50 percent since June, more and more people are finding themselves swimming naked, or they’re about to.

Consider the formerly invincible oil cartel, OPEC, which seems to be suffering from delusions of its former glory by taking on oil producers in America. Instead of cutting production in order to “stabilize” oil prices, the cartel, led by the aging big kahuna, Saudi Arabia, has decided to

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Lower Crude Oil Prices Already Pinching Producers

This article first appeared online at TheNewAmerican.com on Tuesday, December 2, 2014:

Coat of Arms of Saudi Arabia

Coat of Arms of Saudi Arabia

As crude oil prices continued their breathtaking drop, the CEO of Canadian Natural Resources, Canada’s largest oil company, Murray Edwards (the 14th wealthiest Canadian) was asked on Friday just how much further crude oil prices could decline. His response:

On a given day you can have market fluctuations where prices fluctuate far more than the underlying economic value of the unit. Prices could spike down to $30, $40. It got down to $35 in 2008, for a very short period of time.

On Monday crude oil prices briefly stabilized and then dropped further on Tuesday, hitting new four-year lows.

This pronouncement is at odds with an oil production estimate by the seemingly eternal oil optimist and economist Mark Perry, who rejoiced on Monday that

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George Mitchell: the one man most Likely Missing from Thanksgiving Day lists

This article first appeared at The McAlvany Intelligence Advisor on Friday, November 28, 2014:

English: "The First Thanksgiving at Plymo...

English: “The First Thanksgiving at Plymouth” (1914) By Jennie A. Brownscombe (Photo credit: Wikipedia)

It’s a safe bet that Americans, in compiling their list of blessings for which they were most thankful on Thanksgiving Day, didn’t put George Mitchell at the top. It’s even safer to bet that most Americans don’t even know who he was, or how his life has made life better for nearly every American today.

The Economist had it right: “Few businesspeople have done as much to change the world as George Mitchell.” The founder of Mitchell Energy & Development Company located in Galveston, Texas, Mitchell was responsible for drilling more than 10,000 natural gas wells and, in the process, resetting the world’s energy equation.

Although he passed away over a year ago at the age of 94, Mitchell’s advances in fracking technology are continuing to delight American drivers with

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Pressure Building to Repeal Two Laws Keeping Oil and Gas Prices High

This article first appeared at TheNewAmerican.com on Monday, November 17, 2014:

Senator Lisa Murkowski

Alaska Senator Lisa Murkowski

Alaskan Republican Senator Lisa Murkowski, soon to chair the Senate Committee on Energy and Natural Resources, is already setting the table for a serious conversation about getting rid of at least one archaic law dating back to the mid-1970s: the Energy Policy and Conservation Act of 1975.

That law bans the export of crude oil (with some minor exceptions) and could endanger the oil shale boom as a result. Said Murkowski:

The price American drivers pay for gasoline at their local station is linked to the price of oil set by the global market.

 

Exporting U.S. oil to our friends and allies will not raise gasoline prices here at home and should, in fact, help drive down prices.

As the price of crude oil drops, it increases the chances that smaller marginal crude oil producers will be forced to close unless they are allowed to find buyers outside the United States willing to pay more for their product. One of the bottlenecks has already been opened:

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OPEC’s Hegemony is over

This article was first published at The McAlvany Intelligence Advisor on Monday, October 27, 2014:

English: Saudi Arabia

Saudi Arabia

Tim Treadgold, a Forbes contributor who watches the world’s energy markets, decided to break the journalist’s unspoken rule: never forecast the demise of an individual (or an institution) until he is holding the coroner’s report (or bankruptcy judgment) in his hand:

At grave risk of committing [that] cardinal sin … this time it might be different because OPEC is steadily losing control of the oil market….

The irony, he said, was staggering:

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The Inevitable Demise of the OPEC Cartel

This article first appeared at TheNewAmerican.com on Sunday, October 26, 2014: 

English: Flag of the Organization of Petroleum...

Flag of the Organization of Petroleum Exporting Countries

Following the death of Total SA’s CEO, Christophe de Margerie, on October 20, OPEC sent this letter to the board of the multinational oil and gas company expressing sorrow over the loss:

It is with the deepest regret that the Organization of the Petroleum Exporting Countries (OPEC) learned of the tragic death of Christophe de Margerie, Chairman and Chief Executive Office of French oil major, Total SA, who died when his corporate jet struck a snow plough on a runway at Moscow’s Ynukovo airport late on Monday 20 October.

Missing from the letter was any mention of the demise of OPEC, which has been slowly imploding for years. Recent events have significantly speeded up the process, which

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OPEC Continues to Unravel

This article first appeared at TheNewAmerican.com on Monday, October 13, 2014:

With oil production from the Bakken formation in North Dakota now exceeding one million barrels a day and the Eagle Ford and Permian Basin oil fields in Texas producing more than three million barrels per day, prices for crude are dropping worldwide and pushing gasoline prices down along with them.

Crude oil prices on the New York Mercantile Exchange hit a 52-week low of $83.59 a barrel last Friday, while Lundberg just reported average prices for gasoline across the country have dropped to $3.26 per gallon. As recently as May 2, gas in the United States cost $3.72 a gallon.

In response to these falling prices, Saudi Arabia, the largest producer in OPEC, earlier this summer

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