Crude Economics
Oil Prices Hit Four-Year Low, OPEC Does Nothing
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  • TheCynical1

    Early September: the U.S. announces it would begin airstrikes in Syria. The Saudis have long wanted U.S. involvement in Syria.

    Early September: oil begins its drop below $100, which the Saudis are content to allow and even encourage. This puts pressure on Putin, which the U.S. likes. Also, this puts pressure on Iran, which the U.S. likes too. (The Saudis also like the pressure on Iran, for their own reasons.)

    Just a coincidence, I’m sure.

    • Corlyss

      I was going to say something similar. The nations that the craven Saudis depend on to save their worthless butts need low oil prices to help them afford Saudi “friendship.” Nothing would please me more than to see ISIS on the rampage in Saudi Arabia or Qattar. My undiplomatic response would be “Daddy Rabbit, meet your progeny . . . “

  • Jacksonian_Libertarian

    “Fracking is expensive, and drillers will likely start having to cut production if crude drops into the $70–80 per barrel range (it’s trading around $85 today).”

    This is a dated number, this blog showed a graph of skyrocketing oil production per well in a recent article but is here using production costs that are several years old. Also, since the graph showed such a strong increase continuing we know American producers are already structured around ‘cost cutting and production increases’ unlike the stagnate and decaying state owned monopoly oil companies of OPEC. We can expect the OPEC producers to lose market share long before American producers even start to slow development. Also remember that American producers have a captive market connected by pipelines and any imported oil has to be first shipped at an increased transportation cost. With production at 12 million barrels a day, and consumption at 18 million barrels a day transportation costs of American oil will not be increasing anytime soon.

  • This almost sounds like the petroleum version of a liquidity trap. Any attempt to raise prices does two things that OPEC can’t afford:

    1) It throws Europe into a more extensive recession than it’s already in, resulting in the price falling–so raising prices does nothing.

    2) It encourages US producers to bring more fracked oil online by signaling a shortage, which further erodes OPEC’s power–so raising prices does worse than nothing.

    Fracking and horizontal drilling really have changed everything. It’s no longer about who has the reserves. It’s only about who can produce the most cheaply.

  • PDX_traveler

    there is of course another reason, which is not mentioned here I think. The Saudi’s do not want to lose control of the oil market – they especially want the US to have a sizeable stake in the Mideast oil import business, and they would like to pressure North American producers (whose breakeven price is conveniently not mentioned here). At some price, the North Am. E&Ps will buckle, and the Saudis regain some control.

    • PDX_traveler

      and yes, I am a dummy for not reading down to the last paragraph more closely, where the NA breakeven is reported. But, my point still remains..

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