Saudis block OPEC output cut, sending oil price plunging

[mfcorey1]

VIENNA (Reuters) - Saudi Arabia blocked calls on Thursday from poorer members of the OPEC oil exporter group for production cuts to arrest a slide in global prices, sending benchmark crude plunging to a fresh four-year low.

Brent oil fell more than $6 to $71.25 a barrel after OPEC ministers meeting in Vienna left the group's output ceiling unchanged despite huge global oversupply, marking a major shift away from its long-standing policy of defending prices.

This outcome set the stage for a battle for market share between OPEC and non-OPEC countries, as a boom in U.S. shale oil production and weaker economic growth in China and Europe have already sent crude prices down by about a third since June.

"It was a great decision," Saudi Oil Minister Ali al-Naimi said as he emerged smiling after around five hours of talks.

OPEC said in a statement that members had agreed to roll over the ceiling of 30 million barrels per day, at least 1 million above OPEC's own estimates of demand for its oil next year.

http://finance.yahoo.com/news/low-expectations-oil-output-cut-082000197.html

[JonLP24]

1. I can't remember where I read it

But Saudi Arabia employed this strategy before, mid 80's I think. It is a long term strategy but it worked out in their favor, putting pressure on the world's other oil producers.

[quaker bill]

2. correct sir!

[Sen. Walter Sobchak]

3. That's only part of it.

Much of OPEC is in a very precarious state, they can't afford to cut production and wait for prices to rise, maybe. They have to produce and fight for market share to keep their revenue flowing. It isn't a bad outcome globally.

[davidn3600]

4. Unless you are Russia

They're economy is getting killed with these low prices.

[Sen. Walter Sobchak]

6. Would a Russian attitude adjustment be a bad thing?

[JonLP24]

8. Markets like this tend to lead to bad attitudes

Saddam (heads of states in that region tend to be paranoid of neighboring heads of states) thinking Iran might be vulnerable from the Iran revolution started a war, incurring massive debt. Unable to pay off the debt due to the low oil prices, took Kuwait's unwillingness to slow down production as an act of aggression and started a war over it. US got involved of course (after helping him against Iran) because of their 'protect Saudi Arabia' foreign policy since Chevron found oil there.

[Odin2005]

24. The fall of the USSR occured at the same time that oil prices crashed in the 80s.

[safeinOhio]

5. I remember that.

After very high pump prices and lines at the stations the price of gas dropped. Unemployment in the oil patch skyrocketed to about 9%, while the rest of the country did great. It was also a period of lower rainfall in Texas and there was talk of pipe lines for water from the Great Lakes. Folks in Michigan were telling people to let those Texans drink their oil as the Mid-west suffered from unemployment in the auto business because of the high fuel prices. Now all of those repub governors in the oil states that have bragged about how great their economies have been doing because of their policies will have some explaining to do. Sorry about that Rick Perry. What goes around, comes around.

[Odin2005]

23. Saudi oil production has peaked, they won't be able to do this much longer.

They are terrified that American energy independence will make the US not need them, anymore, and the Saudi people will overthrow them.

[JimDandy]

30. The Saudi contingent said they can sustain

Last edited Fri Nov 28, 2014, 02:37 PM - Edit history (1)

this level of production for at least 3 or 4 years. They must be confident that they can squeeze Russia and halt America's shale oil production in that time frame in order to recapture market share.

The cost of a barrel of oil is already down to about $72/barrel today, due to their strategy. Oil shale production is only profitable above $82/barrel. The Saudis can definitely hurt America's oil industry at those prices.

An interesting window of opportunity presents itself for increasing the federal gas tax as retail prices drop, though. An increase in that tax could kick start the rebuilding of our crumbling transportation infrastructure. The GOP is going to have to contend with the deep rumblings of discontent with our infrastructure, until they do something in Congress to rectify the situation. It's been more than 20 years since the gas tax was increased

[Bagsgroove]

7. Good news / bad news

The good news, for consumers, is that in the short term gasoline prices may continue to fall.

The bad news is that the economic incentive to develop and use efficient or renewable energy decreases. It's amazing how just a short period of high gas prices drives everybody to buy high mpg or hybrid cars, and a short period of low gas prices gets people back into gas guzzling SUVs.

We are a very short-sighted people.

[BootinUp]

11. The free market will fix it

[Thor_MN]

14. A free market invisble hand job?

or a job for the invisible hand of the free market or something. 'cause leeburty and freedum.

[Dale Neiburg]

26. Additional good news?

I've been wondering (tin foil alert?) whether the low oil prices on the world market might be the result of bilateral finagling by the USA and Saudis, to reduce ISIL's ability to capitalize on the oil fields/refineries they've captured.

[truebluegreen]

29. That was my first thought: slow the development of alternatives

by making them less attractive economically. It is what OPEC has done for years--not allowing the price of gas to get too high--and I'm sure it will work in the short run, and be a disaster for us all in the long run.

[FLPanhandle]

9. This will be unpopular, but I prefer high oil prices

High prices encourages people to drive less, makes alternative energy sources more economically viable, and promotes jobs in the oil industry here in the USA.

Eventually, we have to get off of fossil fuels. Cheap oil just delays the inevitable and fills our atmosphere with CO2 in the meantime.

[Ilsa]

10. Understood. But it hurts poor and middle classes

pretty bad budget-wise. But yes, it helps conservation efforts, and we need to prioritize: planet survival over everything else.

[Bluenorthwest]

13. That's precious. Do you also like to see food prices climb so that the poor will not overeat?

High food prices encourage people to eat less. Thus food should be really expensive. For their own good.

[Recursion]

18. Maybe they should try sustainable foods (/sarc)

Unfortunately, petro fertilizers are so commonly used that the basic barrel price does affect staples (which I'm sure you know, just putting out there for the lurkers to connect the dots).

[JonLP24]

19. There is a good news/bad news to this

I think we can all agree the low prices are good for consumers who have more money in their pocket - though the rise in SUV sales is a fair criticism.

Bad news is production will eventually slow down in the US leading to job loss for those who work in the industry. Worldwide it leads to political tensions, especially from countries whose economies rely on oil production.

It also increases our carbon footprint.

[Thor_MN]

17. Fine and dandy if one lives in a dense urban setting.

Screw you if you live in rural areas.

[FBaggins]

28. Then increase the gasoline tax

There's no reason to send extra cash to Venezuela, Iran, etc.

[ColesCountyDem]

12. And we need $80/bbl. Canadian oil and a pipeline WHY? n/t

[Recursion]

16. Ironic, isn't it, that OPEC has made Keystone XL unprofitable? (nt)

[ColesCountyDem]

20. Irony so thick you could cut it with a knife. n/t

[Recursion]

21. The last thing OPEC wants is a self-sufficient western hemisphere. Venezuela was their first target

They play dirty.

[JonLP24]

25. OPEC appears to me reacting normally

Oil markets prefer the higher prices so slowing the production is a normal reaction. Saudi Arabia is fighting a price war which they have the oil to survive which many of the OPEC nations do not. OPEC is a little different since it is an agreement among competitors but not much different than individual oil markets adjusting supply & demand on their own. OPEC also would prefer if there were less suppliers and the works vice versa.

When it comes to oil everyone plays dirty

[JonLP24]

22. It should be pointed out Keystone wouldn't have done a thing for gas prices

For one, it would have took a long time to built and the oil market will be very different by then. Canada will slow or push production as they see fit. They are already pushing tar sands by rail as well as North Dakota showing no regard to safety or potential spill disasters.

The main impact would be the jobs, mainly construction & refineries but it would have led to job loss for the oil-by-rail refinery hubs.

[Recursion]

15. They will continue this, until Canada/US/Venezuela agree to cut output

This is nothing new.

[Gothmog]

27. WTI was under $70 a barrel yesterday

[IDemo]

31. Whence 'The Ghawar is Dying'?

Was that just bad geology?