That’s exactly what they are trying to do and the smart thing for the US would be for the government to support their own industry while it is under attack from outside sources, but thats a political hot potato. Probably not a coincidence that this is happening just as the presidential race is starting up; there will be some shit slinging before this is all over.
Lots of insight in that post, but the above is the biggest IMO. The Saudis find it more palatable to ride out the short-term price shocks rather than foster the emergence of long-term competition.
Well, here in California we have special blends, so the impact on Texas would be less. Plus, it would not happen if everyone in Texas already owned a big truck. (Probably more or less true - except in Austin.) if the market is saturated - everyone wanting a car already has one - lower gas prices won’t lead to more cars. It might lead to more miles driven, but that probably won’t increase consumption as much as fuel efficiency decreases it.
Which is not to deny the impact of China - but how sensitive is the growth of oil consumption there to prices?
Unfortunately, low oil prices also screw over Canada, and a large part of the oil sands industry is owned by multi-national companies (with the US being one of the biggest players). My city and my province are going to have a hard time financially if oil prices don’t recover; my country will also have a hard time because oil is the biggest driver of our economy.
On the other hand, since I believe we have already passed peak oil and the Saudis are desperately trying to hide the true state of their reserves, I don’t think they’ll be calling the tune much longer.
I don’t think OPEC is expecting the US to shut down any wells we’ve already fracked. As you point out, that money’s spent, so the operators are going to harvest the payout, even if it’s less than hoped for. However, fracked wells die out quickly, so we have to continually frack new wells to maintain output. That takes capital, and is what is less likely to happen with a lower price of oil.
I’m not sure it’s really a conspiracy theory to say OPEC is doing this to reduce long-term competition. That’s what cartels do.
Where are you getting your information that demand for oil is reduced?
Any idea how long it takes for a new shale field to get up and running? The thing is this fracking technology cannot be uninvented. The process is far more efficient than it was only a few years ago. The shale oil reserves in the US will be extracted. It just a matter of time as to when. It could be two years or it could be in twenty. The Saudis may do their best to disrupt the industry, but they will not prevent it from being extracted.
I do not, no.
True. I think OPEC’s strategy is two-fold: first, let lower prices burn off some of the excess production by the mechanism mentioned above. Second, try to use low prices to cause oil exploration companies and their backers to take a loss on some of the more expensive production. While it’s not going to take those wells out of production, they’ll think twice before committing capital to the next round of expensive wells. If you fund oil exploration, and there’s a potential well that would be profitable at $80 / barrel and oil is currently selling for $120, you still might not fund it, if the last time you saw those exact circumstances, oil dropped to $70 before you could sell the new well’s production.
As an aside, can someone tell me why Saudi Arabian crude oil is able to come out of the ground already developed? I assume most other countries are not like this.
When the price of gas was so high last spring I kept saying "Well it sucks for me, but it is good for the Canadian dollar, the economy, and especially Alberta.’ Now as the prices fall I watch our dollar fall with it, and I am waiting to see the full repercussions. It’s going to make the Oil Sands extraction a whole lot less profitable. Of course the groceries that have become more expensive with the price increases are not getting any cheaper.
Saudi has all of the necessary infrastructure in place to extract and process oil, so production costs are around $3/barrel, but to finance the country it needs oil to be around $90/barrel.
Saudi Aramco has cut January prices to Asia and the US, to try and keep market share, crude sold at the wellhead in the Bakken shale region in North Dakota fell to $49.69 a barrel on Nov. 28, Libya recently brought an extra 800,000 barrels/day to the market, Iraq will export 300,000 barrels a day, Kurdistan 250,000 barrels daily.
There’s an oversupply of 1.8 million barrels a day, according to Kuwait.
In a nutshell, here is how I currently understand it from what I’ve gathered over a month or so of reading this and that. There is no single reason, but many. As another mentioned, natural gas would be one. In America proven gas reserves since 1999 have doubled.
China’s economy is slowing.
America has reduced their demand of oil to some extent, while at the same time producing 4 more million barrels of oil daily than what it was doing in 2007, much of this coming from TX and ND.
Global production of oil is about 75 million barrels daily with OPEC producing roughly 30 million barrels of that oil daily, and Saudi Arabia alone being responsible for about a third of the total OPEC output and letting the taps flow. I’ve read this is because they do not want to lose their market share again, which did happen to them before decades ago. America is now producing almost the same amount as Saudi Arabia, some say already has surpassed it, but most experts think that hasn’t happened yet, but will.
Regardless, right now OPEC is in a price war with the US, and wants to get the price low enough to send a lot of these shale producers packing. Russia wants this to happen too. It’s undetermined if this will work because only 4% of shale production in the US requires a price of $80.00 a barrel to still be profitable. Pretty much most of it can go as low as forties per barrel and still be making a profit. Although many of these OPEC countries can go well under that and still make a profit, their countries annual budgets cannot tolerate these prices long term without major implications for themselves. Many of these countries need $80.00 a barrel or more to balance their countries budgets, some need more than $100.00, and oil is basically their only commodity.
It’ll be interesting to see how it all plays out, and see if the US can hold out longer on these lower prices than these OPEC countries are betting on. Right now US Big Oil seems to think they can weather the storm, even if it goes to forties for a barrel.
Spoken like someone who has never been to Texas. See, you’re right, everyone in Texas already owns a truck. But you can always go bigger. Everyone in Texas would upgrade to a bigger truck if gas prices plummetted and stayed low for a long enough period. Amusingly, this creates a red queen’s race, where the highways of Texas are crowded with ever larger military like trucks and you have to buy a bigger truck or risk getting squashed in a collision.
Thanks for the analysis. Do you know how much of a role Canada plays? I believe they have 6x our reserves.
So that HUGE Peak Oil thing …
I am not following this. Jevons paradox doesn’t seem paradoxical to me. If the cost of something goes down, for instance because of technology improvements, then demand MAY increase. Either somebody in China or Florida will buy a bigger car, or the California driver will drive more, or something. The net use of the commodity may increase. But it isn’t certain. Supply and Demand control the (classical) market, not cost. If supply goes up because California drives more efficiently, or there is a recession in Brazil and people don’t drive to work as often, but no one in the rest of the world market needs more fuel, then the market adjusts. Presumably the oil companies will then either cut prices to increase demand or failing that, cut production. Jevons seems to say that increases in efficiency by itself increases the use of a commodity. Increases in efficiency decreases the cost of a commodity, making it more attractive for some uses and thereby increasing demand, but efficiency by itself isn’t a factor in the use of a commodity.
I do get that increasing the efficiency of fuel use in California is not going to help fix global warming. Such arguments are simply advertising for a particular point of view, not actual analysis.
I had assumed that since much of Canada’s oil comes from the oil sands (wiki says over 95%, and mostly through Alberta), it wouldn’t be profitable at these prices to compete, so hadn’t read as much about it.
A quick wiki said Canada’s oil tar sands only needs $30-$40 a barrel to be profitable. Many years ago, seems like I recall on “60 Minutes” the price had to be much higher than that to extract it, but I suppose new technological breakthroughs got the price down to this lower figure. It mentioned the main problem with Canada oil is the labor and housing shortage in Alberta especially around Fort McMurray where most of tar sands are at.
Canada’s proven oil reserves (179 billion barrels, 2007 estimate) are third in the world, and of which United States received 99% of its oil exports. Only Venezuela (297 billion barrels, 2011 estimate) and Saudi Arabia (267 billion barrels), have proven higher oil reserves. Saudi Arabia’s proven known oil reserves over the decades has remained fairly consistent, but Venezuela’s proven oil reserves has skyrocketed over the last few decades replacing Saudi Arabia for the number one spot.
It is just that Saudi Arabia has supergiant oil deposits. They drill a well and it produces for years and years and years. Therefore they don’t have to spend a lot of money drilling new wells to replace exhausted ones like the frackers do. The Saudis can control their production more or less by turning a dial.