Why is Saudi Arabia doing this?
- Thread starter Horn6721
- Start date
Why would we need to ramp up Middle East oil again if demand stays low? As we discussed before US shale production will eventually decline but the reserves will not just disappear because of a reduction in commodity prices. As soon as commodity prices come back, the US shale production will follow in relatively short order. This has permanently damaged OPEC's pricing power. They can drive prices down but they cannot artificially drive prices up as they could in the 70s.
Last edited:
Musburger1
2,500+ Posts
If US demand drops, say 30% but US production drops more than that, the oil must come from somewhere. It isn't going to come from Canada.
The reserves of course will still be in place, but you are assuming demand will pick up in the near to mid-term. My argument is that demand likely isn't going to pick up for years. In the interim, we will import.
When and if demand roars back, the reserves will be tapped and production started up again. But from what I've read, it's more expensive to stop and start shale production than it would be for more conventional oil production. A commenter ( have no idea who he is, this is heresay on his part but it sounds reasonable) on a related thread said this:
The problem with shale oil and several other types of oil production is that you loose when you stop. From what I understand, all types of wells that rely on injections of liquid can be either lost or expensive to restart. Some gunk will fill the underground pipes, like asphaltene.
That describes all of shale oil and in situ production from tar deposits. It also describes older oil fields that depend on water injection. This is how the price of oil can be temporarily negative. To add insult to the injury, removing oil wells from production costs too. Otherwise unproductive wells seep and pollute. That can be avoided by bankruptcy, passing the buck to the public that may learn to enjoy smelly seeps. Alberta had 80,000 oil wells that were not producing but not closing, and the plugging them would cost between 50,000 and 1,000,000 per well (in some funny currency that they use in New Trumpland). This explains why independents have an edge over the "majors" in exploiting small deposits -- once there is a time to close, they can strip the company from liquid asset and leave behind a carcass with big liabilties. Why anyone would borrow them any money is the sad story of the later stage of financial economy.
That describes all of shale oil and in situ production from tar deposits. It also describes older oil fields that depend on water injection. This is how the price of oil can be temporarily negative. To add insult to the injury, removing oil wells from production costs too. Otherwise unproductive wells seep and pollute. That can be avoided by bankruptcy, passing the buck to the public that may learn to enjoy smelly seeps. Alberta had 80,000 oil wells that were not producing but not closing, and the plugging them would cost between 50,000 and 1,000,000 per well (in some funny currency that they use in New Trumpland). This explains why independents have an edge over the "majors" in exploiting small deposits -- once there is a time to close, they can strip the company from liquid asset and leave behind a carcass with big liabilties. Why anyone would borrow them any money is the sad story of the later stage of financial economy.
His argument is based on a false premise. It is very rare to shut-in production for already producing wells. Actually during low commodity prices, that "free" production becomes even more important for cash flow. Drilling new wells is what drops off quickly. You can check US production the last time oil prices dropped in 2015-16. US shale production actually went up and peaked about 6-8 months after the prices dropped. There is also a lot of technology to restart shut-in wells. The industry has really innovated over the past decade.
It could possibly happen if we physically run out of storage capacity due to low demand. I have heard some refineries have run into issue this for jet fuel. Still will not prevent new drilling when commodity prices go back up.
Musburger1
2,500+ Posts
One more caveat. All of this price discussion assumes a near stable currency scenario which the US has enjoyed for quite some time. We did had relatively high inflation in the late 70's with the oil embargo during the Carter administration, but nothing like hyper-inflation or currency collapse. If things get to that level, absolute price numbers becomes irrelevant I suppose, as production costs would soar. Maybe $150/barrel would be the break even point in such a scenario. Hope it never comes to that.
Musburger1
2,500+ Posts
He did mention bankruptcy, in which case the existing wells continue to produce, even when taken over by creditors (banks?). But as you know, the typical shale well produces mightily for the first two years and then tapers dramatically, thus the need to keep drilling new wells. So continuity or failure of shale oil is going to be a function time. Can the economy and demand rebound before depression or even financial collapse? I don't know the answer to this one, but a vaccine is likely several months down the road and people without income and exhausted credit don't spend much.
The storage capacity is a big deal. Once the strategic oil reserves of the planet hit capacity (two or three months?) there are only so many tankers to fill up and sit out in the ocean.
Musburger1
2,500+ Posts
So the Saudis gave in to Mexico. The other OPEC countries have agreed to 23% cuts and let Mexico skate. Mexico was asked to cut 400,000 barrels but will only do 100.000. Wonder who’s gonna cheat?
Monahorns
10,000+ Posts
UTChE96, that is actually a very important point. It means that prices will be stabilized. Not by OPEC's existence but by free market competition.
OPEC is constrained. They can't run other producers out of business because they can't make it back up later. There is a ceiling which means they can't lower the floor too low.
OUBubba
5,000+ Posts
Kind of like Vegas.
Here's a link from today giving some more detail re: Jones Act--
The Outdated Law Threatening U.S. ‘Energy Independence’
In this unique time, domestic oil carrying ships will likely be used as floating storage tanks, if they're not already. A possible work-around for more normal times: run foreign flagged oil tankers from Houston/Louisiana to Jamaica first and unload (after building a big oil tank farm in Jamaica), then load unto other foreign flagged oil tankers from Jamaica to refineries in NJ, Del, Philly, etc.
More thoughts from my days in Hawaii--the biggest proponent/advocate for the Jones Act is Matson Shipping. They've pretty much had a monopoly on shipping between Hawaii and the West Coast. Matson goes back to the old Hawaii days of sugar plantations and the "Big 5" families/companies who controlled Matson and most other large scale economic ventures on the islands.
By Porky?
Joe Fan
10,000+ Posts
WSJ: The Art of An Oil Deal
Opinion | The Art of an Oil Deal
"President Trump has been chasing a diplomatic victory, and he got one this weekend when he brokered a deal between the Organization of the Petroleum Exporting Countries (OPEC) and Russia to limit their production that may also limit the bloodbath in the U.S. shale patch.
OPEC and Russia have agreed to curtail their production by 9.7 million barrels a day—about 10% of global output—in May and June amid a steep falloff in demand due to the coronavirus that is expected to exceed 20% of last year’s consumption. ..."
OPEC and Russia have agreed to curtail their production by 9.7 million barrels a day—about 10% of global output—in May and June amid a steep falloff in demand due to the coronavirus that is expected to exceed 20% of last year’s consumption. ..."
Opinion | The Art of an Oil Deal
Musburger1
2,500+ Posts
Daily on Energy: Texas debates mandating oil production cuts
Currently the price of WTI is hovering around $20.00 and the OPEC deal doesn't do enough to curtail global overproduction.
The CEO of Pioneer is advocating mandatory across the board production cuts.
The CEO of Marathon is against this. Free markets, etc.
The Railroad commission seems to be leaning toward the mandatory cuts.
Currently the price of WTI is hovering around $20.00 and the OPEC deal doesn't do enough to curtail global overproduction.
The CEO of Pioneer is advocating mandatory across the board production cuts.
The CEO of Marathon is against this. Free markets, etc.
The Railroad commission seems to be leaning toward the mandatory cuts.
Monahorns
10,000+ Posts
Sad to see what phonies these oil companies are. If they want the government to control production they should bring that up and offer their corporations to be ruled by Trump. They think it will give them a little short term benefit, but it will kill their business. Government control wouldn't have allowed for the innovation necessary to extract shale oil economically.
LongestHorn
2,500+ Posts
WIMBERLEY, TX Three days following the March 28 underground loss of 36,000 gallons of drilling fluid during construction of the Permian Highway Pipeline in Blanco County, two affected homeowners captured well samples of their chocolate-colored drinking water and had the samples delivered to LCRA Environmental Laboratory Services in Austin for testing and analyses.
The resulting groundwater quality data set has been submitted to the Texas Railroad Commission to inform its current Notice of Violation action against Kinder Morgan issued on April 9, 2020. The data set includes 14 selected inorganic chemical constituents (metals) that have been analyzed and compared to the values for the Environmental Protection Agency’s (EPA) water quality criteria by Raymond Slade, Jr., a certified professional geologist with 35 years at USGS and 17 years as a hydrology consultant in Central Texas.
Water Samples from Homes Near Construction Blunder Were Found to Contain Trace Metal Levels that Exceed EPA Drinking Water Standards - Wimberley Valley Watershed Association
4th_floor
Dude, where's my laptop?
Ditto.
OUBubba
5,000+ Posts
It's nice to see what the Ruskies want us to think.
4th_floor
Dude, where's my laptop?
I just got tired of reading through his long posts, looking for anything that vaguely resembled logic.
Musburger1
2,500+ Posts
You are entitled to your opinions... no matter how off base. Fact is, I’m willing to go out on a limb many times based on a combination of data and non MSM perspectives to make predictions. Sometimes this means exploring outcomes that contradict the status quo and the lifelong biases people assume to be truths. People like yourself don’t just disagree with such conclusions, they become offended and respond with personal attacks (Putin lover, commie, etc) rather than make a logic based rebuttal. Or they tune out because they might be forced to think and are afraid of what they are confronted with.
The great majority here and everywhere have experienced a lifetime of propaganda and their perspectives have been shaped accordingly. Our economic and political system has evolved and merged over time and sold to us via the media as free market capitalism. It is anything but.
Last edited:
Musburger1
2,500+ Posts
Either you can’t understand logic are you are too lazy to make a logical rebuttal. Saying something is wrong or calling someone a Putin lover isn’t a rebuttal.
Why are your outcomes always extremely negative?
Musburger1
2,500+ Posts
Musburger1
2,500+ Posts
Because I’ve concluded our system is systematically broken as a result of corruption; corruption that won’t be solved at the ballot box. Once the system is dismantled (how and when that process unfolds I have no idea but the fallout will be catastrophic) something will emerge in its place. Whatever the new system ends up may not be as beneficial to society as what we had in the 20th century, but it has a chance to be better than where society has been headed for the past two decades or so. Of course, a sizeable percentage of the population has done quite well the past two decades, but how sustainable is a system based on ever increasing debt and continual global war?
So despite the evidence to the contrary, you have concluded that the world is going to collapse to the point of no return because the citizenry won't be able to make any adjustments. I'm guessing that you have some personal bias due to how the world has treated you, but gloomy people are not usually successful.
Musburger1
2,500+ Posts
That's not even close to what I said. Do you ever have an original thought of your own or do you just misstate what other people say?
Weekly Prediction Contest
* Predict HORNS-AGGIES *
Sat, Nov 30 • 6:30 PM on ABC
Recent Threads
-
The Media Industry
- Started by texas_ex2000
- Replies: 8K
- West Mall
-
President Biden Accountability Thread
- Started by 2003TexasGrad
- Replies: 4K
- West Mall
Prediction Results Threads
