http://www.opec.org/opec_web/en/about_us/25.htm



We're not in there, nor is UK or Russia...but really, aren't we trying to get OFF the black gold?

Smart move......sheesh.

The Saudis and OPEC have a two pronged strategy working. First, they don't want USA or Canada to have a reason to expand shale oil production or step up fracking to meet energy needs. THEY want to be the Big Suppliers. The only way they can do that is to be competitive so that's what they are doing--keeping their price competitive. It's all about supply and demand, after all. As Lead Dog at OPEC, they have a large role in setting the agenda, but they aren't acting unilaterally. They'd rather make less money, but keep it rolling in, than not make any money at all. They'll just have to try to find efficiencies to keep the expenses down to mitigate the profit loss.

Second, the Saudis are looking down the road to a time when Oil is not King, and they are investing in other technologies. They intend to stay in the energy game--they know it, they understand it--but their next adventures will be in the Renewables Game.

Do we benefit from the lower oil prices? Sure--everyone does in the short term, but we (and they) aren't so foolish as to think this is gonna last. What we need to do is use this bit of breathing room to get ready for the next big thing. The smart people will be using the lower energy costs to build factories that will produce solar panels--the dummies will be buying reconditioned Hummers!

Solar/Wind is all about production locally, not loading up tankers with electricity.

If prices continue to fall, they could be looking at a NASTY feedback effect. As the price falls, they have to sell more to maintain the same revenue level, which means more price cuts, etc. So, this could get really bad for oil producers (which includes us) before it reverses.

That said, when it reverses, it will spiral the other way with a vengeance.

I seriously hope to be off the grid before that happens.

Last edited Wed Dec 24, 2014, 12:28 AM - Edit history (1)

UK is still increasing Natural Gas production from the North Sea, but oil production is in rapid decline. The US was the #1 producer of oil till the early 1980s (yes, the US was IMPORTING oil while still the #1 oil producer in the 1970s). The US is now the #3 oil producer behind Russia and Saudi Arabia. The US is expected to become a net oil exporter, for the first time since 1969, in 2017, but afterward the Oil from Fracking is expected to drop and the US will return to a net oil importer.

Recently the Security and Exchange Commission ruled that oil companies can cite what they think are their oil reserves, NOT what independent research indicate and support. In previous decades oil companies could only report what such independent research indicated where their oil reserves, for the companies had great incentive to lie about their own oil reserves. This change in regulations have permitted massive overstating of oil reserves in fields to be Fracked. When these oil field data is independently calculated, they have been downgraded as much as 90% i.e. what oil may actually be in the field is 10% or less of what the oil company claimed. These unverified claims is the justification for US oil exports after 2017, exports no one actually believe will occur given the nature of the fields.

I bring up the UK and the US to show that their oil production is NOT a concern for OPEC. Of the top 15 oil exporters, Only Russia (#2 Exporter), Angola # 9 Exporter, Norway, #11 Exporter, Canada #13 Exporter and Kazakhstan #14 Exporters are NOT members of OPEC.

http://www.eia.gov/countries/index.cfm?topL=exp

Please note Libya is #15, but that is do to reduction do to its recent wars and problems. It is a member of OPEC and a much higher exporter then the 2012 statistics would indicate.

http://www.eia.gov/countries/index.cfm?topL=exp

Thus this price cut is aimed at these non-OPEC members AND thus members of OPEC known to violate OPEC production guidelines (Libya # 15 exporter and Iraq #5 exporter, and the most predominant violators of any production quotas at the present time, but Saudi Arabia is most concerned about Iran, the #8 exporter).

Now, OPEC has been called the tail of the dog known as Saudi Arabia and it is the DOG not the TAIL that sets world wide oil prices. This is do to the fact most OPEC members cheat on their production quotas thus what Quota OPEC set is meaningless for the real price of oil is set by how much oil Saudi Arabia decides to pump NOT what OPEC as a whole agrees to be pumped. As long as Saudi Arabia is NOT willing to cut production, production will continue and with it a drop in the price of oil. The real question is why is Saudi Arabia let the price of oil drop??

There is plenty of reasons for Saudi Arabia to drop the price of oil. One story is the US asked them to do so, to punish Putin for his actions not only in the Ukraine but is support of Assad in Syria. Russian production costs are almost as low as Saudi Arabian costs of oil production, but Putin has budgeted for a much higher profit from the sale of oil then Russia will get with the drop in the price of oil. This will cut what Putin can spend money on, including supporting Syria and Iran. The problem with this theory is the recent production increases are much more recent then the problem with the Ukraine and Syria, so this is at best a secondary reason for the production increases.

I have wrote elsewhere that Iran and Saudi Arabia are in a fight over Natural Gas Pipeline from Qatar to Turkey. Putin was backing the Iranian pipeline which was to go from Iran opposite Qatar to Basra in Iraq, then across the Iraqi Desert to Syria, and then to Lebanon, then to Cyprus (using an undersea pipeline) then to Greece (again using an underwater pipeline).

Putin signed a deal with Turkey, dropping the proposed natural gas pipeline from Russia to Europe via the Black Sea, for a similar one through Turkey. I suspect this upset the House of Saud for they plan for the Qatar Natural Gas pipeline was from Qatar to Saudi Arabia, then to Syria, through areas held by ISIS then to Turkey then to Europe. In effect Turkey has decided to opt for a Russian Natural Gas Pipeline over a Saudi Arabian Natural Gas Pipeline. That pipeline can also take the Natural gas from the above Iranian-Iraqi pipeline by going up the coast, an area where Assad has most of his support (it is his tribal area).

I suspect Turkey has switch sides, from being pro Saudi Arabia (who are also pro Israel while saying they are anti-Israel, it has been long understood that Israel jets will defend Saudi Arabia if Saudi Jets or American Jets can not) to being pro Iran. That switch scares the House of Saud and they now want to punish Russia for getting the Turks to agree to switch sides. Turkey imports its oil from Iran already and its Natural Gas from Russia so Saudi Arabia has little control over Turkey, but Saudi Arabia can hurt Russia by undercutting the price of oil. Thus this is clearly an attack on Russia, the real question is why, and that appears to be Turkey's decision to join with Russian on a new Natural Gas Pipeline thus blocking any Qatar/Saudi Arabian Pipeline.

In simple terms this is to get Russia to quit the deal with Turkey, maybe to end their support for Syria and Iran, but if Turkey has switch sides that leaves the only viable pipeline being the Iranian pipeline. Cyprus and Greece solidly support Russia and Iran for both get their fuel from RUssia and Iran.

So enjoy the cut in price while it lasts. Sooner or later cooler heads will prevail in Saudi Arabia and production cuts will be ordered. Probably after US drilling of new wells for Fracking had long stopped so the price can climb back to $5 a gallon (and then drop back to $4 whenever drilling for new fracking wells resumes). This sounds like a bit of spit for the House of Saud and their allies among the Persian Gulf Emirates are facing having to deal with Russia, Iran and Turkey to get their natural gas to Europe.

Sidenote: Drilling a well for Fracking is expensive, but once drilled the cost of pumping is quite low. Thus you decide to drill a well based on a price that can pay for pumping the oil but also drilling the well. The problem is the highest cost is drilling the well but if the price of oil drops below the cost of drilling the well and to pump the oil, you end up selling the oil at a loss. You are then forced to minimize your loss by selling the oil as long as the price exceeds your cost of pumping the oil. This puts additional pressure on the price of oil to drop. The driller can no longer make a profit, but he can minimize his loss by selling the oil he does pump.

In such a situation, you can NOT maximize profits, you can only minimize loss. If the well is already drilled it will be pumped till it is dry (about five years, fracking wells do not last long). On the other hand if the cost of drilling can NOT be paid do to the drop in price, no NEW wells will be drilled. Thus over time oil production from existing wells will slow and then stop. As long as the oil can be sold at a price over the cost to pump the oil, the oil will be pumped even if that means it is sold at a loss if you include the costs to drill the well in the first place. Once the cost of pump can no longer be paid out of the price of the oil, oil production from that well will stop.

At the same time, given the cost of drilling can NOT be recovered from the sale of the Oil from the well, no new wells are drilled. Thus sooner or later you get to a situation where the older wells stop producing oil and there are no new wells to replace that lost production of oil. Since no new wells would have been drilled the supply of oil will becomes tight and the price will raise.

This increase in the price will continue till the price goes back up to a price that can be profitable to not only pump the oil but drill the well. Then new wells will be drilled and if to many new wells are drilled (and they will be given the high profit at that time period) you end up with over supply and a drop in demand and a drop in price and the cycle restarts all over again.

This will lead to ups and downs in the price of Gasoline and other Fuels. This is where the market was headed before the recent decision by Saudi Arabia to increase production and force the price of oil even lower. Yes, the dynamics was downward, but not this fast and I do not think to this level. Saudi Arabia has always cut production to keep the price of oil up, the question why are they not doing it now and I suspect it has to do with Putin's deal with Turkey.

purposes of refining. For example, Venezuela sits on a sea of oil but it is not the light sweet crude of the Kingdom of Saudi Arabia. It is heavy, smelly, sour stuff--and USA has the refineries to handle that stuff. So, we "import" the stinky, sour junk, we turn it into light and sweet stuff, and we send it on its way. We aren't importing it to use, we're importing it to clean it up. It is a transaction, not a purchase of energy.

Your geopolitical considerations no doubt come into play with regard to Saudi Arabia's decision-making. I also think they are starting to realize that oil isn't going to be their gravy train forever, which is why they are starting to invest, heavily, in alternatives, most significantly solar. Supposedly they're going to need to have a plan in place inside of twenty years, or they'll be in the hurt locker.

Which is why the EIA numbers I am using are "Net Exports" not "Total Exports". The cite I gave is NET Exports and Imports NOT total Exports and Imports.

If they take a serious loss, my bet is our tax dollars will be used to make them whole again.

I think they know that the days of oil are on the wane, and they are going to keep selling as long as they can pump the stuff and make enough money to pay the staff to do it.

It's not quite a "Going Out of Business" sale, but it's close.

Some reports have KSA running out of oil by 2030.

It's certainly providing impetus to the Divest from Fossil Fuels movement. 6 months ago it was for the principle of the thing... now it's a practical investment move.

http://www.forbes.com/sites/dannykennedy/2012/12/10/saudis-invest-heavily-in-solar-just-as-the-us-tries-to-catch-up-to-saudis-in-oil/



I think we're on the cusp of a change in the way people are thinking--even the oil producing states are turning to solar as a way to clean their own air and extend their reserves....every barrel they don't burn at home is one they can sell. Over the long haul, though, one country at a time, we're going to see solar and wind--and who knows, maybe even wave power--become ascendant.

Oh, happy day! It can't come too soon to suit me!

to stop letting solar power houses sell back to the grid.
Taht is a telling move.

There will be skirmishes on the front lines of battles about alternative energy, but double digit returns is gonna attract a LOT of money.

beyond the next century. I don't think most really get that we are close to annihilating most species including our own. It is very hard to think about - that may be why many are not thinking about it.

Thanks for the link!

to keep the markets flooded with cheap gasoline. But wouldn't this make the cost of fracking and tar sand oil just not profitable? Be funny if OPEC including members like Venezuela, drove the American oil companies to bankruptcy.

The funny thing is, it helps US environmentally. If their oil is cheap, we don't need to produce shale oil or frack so much.

And we can use all this cheap energy to gear up for the production of renewable energy.

The smart "oil" companies are diversifying into wind and solar--that is the future, and with all this cheap energy, now's the time to build up that infrastructure--the one that will produce the renewable capability.

The fracking/shale biz was contingent on 100 oil.
The money was in the lands and for the banks, in the loans, which they packaged and sold as bonds.
( Banks monetize debt this way....mortgages, car loans, etc)

So, yeah...when OPEC says they are gonna keep the price down, a cold wind blows thru the fracking boom.

Those poor shale and fracking companies! Well, we will just have to subsidize them and give them tax breaks. Right?

be bailing them out.

You have to think about all the money that was loaned to theses entities to operate (Via banks who got the cheap money from the Federal Reserve aka our gov). Now they will all pretty much have to shut down and how are they gonna pay the bills unless we bail them out?

Saudi is doing this over market share. They can crank that stuff out of the ground anywhere around $30 a barrel and be just fine while the rest of us tank in our oil recovery/exploration and oil related jobs.

It's 1/2 dozen of one and a 1/2 dozen of another. We have cheap oil and it puts more money in my pocket, however think of all the lost jobs and bankruptcies that will soon follow.

Newton had a great theory, something about for every action there is an equal and opposite.

I know I am trying to live a "minimalist" life, no doubt there will be others forced to live the way I do - and that will be a good thing, however I do not think that most are ready for the drastic change in lifestyle that is coming.

I know we will. I mentioned it as a 'funny' and immediately realized: yep. We will be supporting them.

And I hear you re minimalist life. I agree, we're in for a very big reality check.

And once the investor class is wary of investing in oil development in the future, the price will shoot right back up.

(couldn't happen to nicer folks), it is the banks and hedge fund managers who invested in fracking like drunken sailors who are now to going to bleed to death, or rather, they are going to start bleeding us dry to keep themselves alive just like last time. This time, I don't think we'll survive.

Venezuela is in a world of hurt right now. Their production of good quality oil is way down, and their heavy bitumen-type "oil" sells at a discount to WTI because it is more difficult to refine. If you want the American oil companies go bankrupt, it won't be Venezuela that does it.

They shouldn't mess with that.

They almost are at $60 barrel.

They've already sold a ton of oil to China at fire sale prices, anyway, in advance, in exchange for some hefty loans. At least with the price of oil going down, they aren't taking quite so much of a bath on that bad deal.

fracking is uneconomic when oils under 70bbl.

I'm hearing lots of layoffs in ND fracking areas.

Unemployment in Bismark is 1.9%, Fargo 2.2% and statewide 2.8%, lowest in the U.S., despite your hopes for unemployment. Compare those rates to wherever you live.

But the good news is your unemployment numbers may not change all that much; the oil workers are pulling up stakes and leaving the state, the smart ones with full pokes.

Fracking requires oil at $70-$80 to break even. With oil dropping below $60, existing companies are going to go under and new investment/drilling will evaporate.

So much for oil predictions....

Predictions I have seen from respected sources ranged from 2010 to 2030. To claim the current situation "debunks" "Peak Oil" theory is the same as claiming that a cold winter disproves global warming.

The current situation is basic math. If the breakeven price of fracked oil is $70 and oil is trading at $57 ( I just checked the spot market) then you are losing $13 for every barrel you produce. It is called the Boom/Bust cycle and it has been going on in the oil biz since the oil biz began. The oil industry NEVER learns.

Economist and oil analyst Daniel Yergin notes that the first predictions of imminent oil peaks go back to the 1880s, when some American experts believed that exhaustion of the Pennsylvania oil fields would kill the US oil industry. Another wave of peak predictions occurred after World War I.
"... the peak of production will soon be passed, possibly within 3 years. ... There are many well-informed geologists and engineers who believe that the peak in the production of natural petroleum in this country will be reached by 1921 and who present impressive evidence that it may come even before 1920."
- David White, chief geologist, United States Geological Survey (1919)


In 1956, M. King Hubbert created and first used the models behind peak oil to predict that United States oil production would peak between 1965 and 1971.
In 1956, Hubbert calculated that the world held an ultimate cumulative of 1.25 trillion barrels, of which 124 billion had already been produced. He projected that world oil production would peak at about 12.5 billion barrels per year, sometime around the year 2000. He repeated the prediction in 1962. World oil production surpassed his predicted peak in 1967 and kept rising; world oil production did not peak on or near the year 2000, and for the year 2012 was 26.67 billion barrels, more that twice the peak rate Hubbert had projected back in 1956.
In 1974, M. King Hubbert predicted that world peak oil would occur in 1995 "if current trends continue." However, in the late 1970s and early 1980s, global oil consumption actually dropped (due to the shift to energy-efficient cars, the shift to electricity and natural gas for heating and other factors), then rebounded with a lower rate of growth in the mid 1980s. Thus oil production did not peak in 1995, and has climbed to more than double the rate initially projected.

In 2001, Kenneth S. Deffeyes, professor emeritus of geology at Princeton University, used Hubbert’s theory to predict that world oil production would peak in 2005. As of late 2009, Deffeyes was still convinced that 2005 had been the peak, and wrote: “I think it unlikely that oil production will ever climb back to the 2005 levels.”
Matthew Simmons said on October 26, 2006 that global oil production may have peaked in December 2005, though he cautioned that further monitoring of production is required to determine if a peak has actually occurred.

In October 2007, the Energy Watch Group, a German research group founded by MP Hans-Josef Fell, released a report claiming that oil production peaked in 2006 and would decline by several percent annually. The authors predicted negative economic effects and social unrest as a result.

Data from the United States Energy Information Administration show that world production leveled out in 2004, and an October 2007 retrospective report by the Energy Watch Group concluded that this data showed the peak of conventional oil production in the third quarter of 2006.

http://en.wikipedia.org/wiki/Predicting_the_timing_of_peak_oil

And it goes on and on and on...

Do you really think oil will stay at $57? It won't. It will go up and it will go down. Depending on price different business models will react to whatever the price is.

but not exactly authoritative.

Hubert predicted U.S. peak between 1965-1971 and it peaked in 1970. Other predictions have been adjusted as empirical data became more reliable. The U.S. may actually reach its 1970 number this year, which would contradict the original prediction using tech that Hubert didn't forsee, but I would also point out at an environmental cost no one would have predicted would be tolerated by a sane society.

The over all theory of Peak Oil is sound. A finite commodity is going to spike in production until each reaches the most that can be gotten out of the ground, the easily found/pumped oil in this case. After which, production will decline and it will get more and more expensive to get out of the ground. We moved from oil that was literally bubbling out of the ground in the 1850s, to deep drilling, to offshore oil, to arctic oil, back on to land with tar sands and shale oil that require fracking and other dirty/energy intensive means to obtain.

We can quibble about the exact number of barrels produced or the tech used, or environmental damage inflicted, but at some point you run into Peak Oil theory's unassailable truth: Once the amount of energy required to extract a barrel of oil is greater than the oil's actual energy content, the party is over. That is an iron-law of physics.

which is kinda former9thward's whole point...

When you get down into the weeds of Hubert's theories, tech is taken into account. New tech makes it possible to get more oil, but at ever increasing cost (and damage to the environment which was not considered in Hubert's original calculations). As the cost and effort rise, inevitably you reach a point where the energy expended to extract the oil exceeds the energy contained in the oil, once that happens, decline is irreversible. You can still find oil, but you can no longer extract it without creating an ever increasing energy defecit.

Right now we are heading into a bust phase of the boom/bust cycles that have been part of the oil biz since day one. The science underpinning the inevitability of Peak Oil hasn't changed just because of a short term oil glut.

They were making a ton of money but both have been layed off. The entire company they worked for is cutting back.
This is only one company but they are telling me all are hurting.

I live in southwestern South Dakota. Not much changes here.

The price goes up and suddenly everyone is saying we are at peak oil and it is going to be $200 a barrel soon and $10 a gallon gas. The price goes down and everyone is saying $20 a barrel and the shale industry is doomed. The cycle will return.

Post at DU thread, Bank of America Sees $50 Oil as OPEC Dies

Focus on top spots to boost US oil output even as well permits fall

By Reuters Media on Dec 6, 2014 at 1:12 a.m.

WILLISTON -- U.S. energy firms are swiftly shifting drilling rigs away from less productive areas and hunkering down in sweet spots of North Dakota and Texas shale oil fields as they try to lift output and cut costs in response to the toughest crude market in years.

Rig deployments or applications for new well permits fell by half in recent months in parts of North Dakota's Bakken formation and the Eagle Ford and Permian Basin in Texas, but the most prolific areas are holding up, according to officials and data from the two top crude-producing states.
....

Sweet spots

North Dakota regulators say prices would have to slide to $40 per barrel before most producers started losing money there.

Consultants at Woods Mackenzie say the breakeven level for Eagle Ford in Texas could be as low as $50 per barrel.

There's much more at the Dickinson Press Energy website.

nothing ever stays the same in oil. Prices go up and down. Time will tell ....

in Agri-business heavy states like the Dakotas with no large cities to skew the UE numbers upwards.

beat the drums of war while patiently and methodically Obama put economic sanctions into place?

Now Russia is on its knees, not a single shot from a gun fires.....guns are useless for almost everything...intelligence and patience and friends with vast oil production is better. Russia was always vulnerable to lower oil prices, they made it obvious in their annual budgets.


And a huge, huge bonus to the American economy and consumers, also known as regular folks, and a finger in the eye of cons and oil and energy robber barons.

Gas prices alone are a $1000 a year cash gift from your President, folks.

Enjoy, turn off CNN, Fox and the networks.

Obama has.

The tortoise won the race, remember?

Thanks Obama.

that economic sanctions hurt more than an actual shooting war would have.

Try other hypotheses, Fred. Your posts have become sooooooooo predictable.

and am enjoying it immensely.

that are fast becoming worthless.

We will all pay for the failures in the shale and fracking arena through currency debasement.

...and prices will soon start the uphill climb once again.

It's either Russia or the US fracking industry.

Russia is no friend to them at all. They're taking a stick to North American oil ambitions at the same time.

And isn't this really hard on Iran?