Political Wrinkles  

Go Back   Political Wrinkles > Political Forums > Economics
Register FAQDonate PW Store PW Trivia Members List Calendar Search Today's Posts Mark Forums Read

Economics Discuss OPEC shaken by Saudi price move at the Political Forums; OPEC shaken by Saudi price move November 5, 2014 Associated Press Save | VIENNA (AP) Saudi Arabia showed little ...

Share LinkBack Thread Tools Display Modes
  #1 (permalink)  
Old 11-06-2014, 01:52 AM
Jackass master's Avatar
Tired old ass
Join Date: Nov 2012
Location: on top of the mountain
Gender: Male
Posts: 5,437
Thanks: 2,946
Thanked 4,198 Times in 2,459 Posts
Default OPEC shaken by Saudi price move

OPEC shaken by Saudi price move
November 5, 2014
Associated Press
Save |

VIENNA (AP) Saudi Arabia showed little concern for fellow OPEC members by unilaterally cutting its oil prices to the U.S. this week, a move that casts doubts on the cartel's credibility and its ability to find a common plan to stabilize the slumping energy market.

And while OPEC struggles to find consensus, oil prices risk remaining low or falling further to the benefit of consumers and businesses in the U.S. and worldwide.

OPEC is already riven by differences among its members on what the ideal price level should be. That is exemplified in the rivalry between heavyweights Saudi Arabia, which can withstand lower prices, and Iran, which relies on a stronger market to remain profitable.

The Saudis' unexpected move on Monday to cut prices to the U.S., aimed at protecting their market share there, will exacerbate those conflicts weighing on the market and hurting most other OPEC members economically.

"At the end of the day, this is still the Saudis' cartel for better or worse, and for smaller members this is definitely worse," says oil analyst Phil Flynn, alluding to the fact that despite OPEC's credo of consensus and unity, the organization is de-facto controlled by its top producer.

The prime motivator for the Saudis is to compete against U.S. shale oil. But John Hall, chairman at Alfa Energy, sees other benefits for the desert kingdom.

Russia, which competes with OPEC, is already hurting from low oil prices and Saudis are tightening the vise "seizing the opportunity to reduce prices, hit Russia and hit Iran in one go," he says.

When the cartel meets later this month to discuss how to manage the recent market slump, tensions are likely to fly high and hopes for concerted action are low. Flynn calls the current price slump the "biggest threat (to OPEC's unity) since oil hit the $10 range" 15 years ago.

The price of crude hit three-year lows on Tuesday on news of the Saudi move. On Wednesday, the benchmark New York contract recovered only slightly to trade just above $77 a barrel. The international grade of crude also hit multi-year lows.

These levels are manageable for the Saudi government, as its coffers are well-padded and its oil production costs are relatively cheap.

Not so for many others within the 12-nation oil producing organization with higher extraction costs and national budgets dependent on higher crude revenues.

Even without the Saudi price discounts, Iran's ability to export oil was slashed by international sanctions imposed over its nuclear program. Tehran, which once hoped to displace the Saudis as OPEC's top producer, has seen its oil revenues nearly halved as a result.

If sanctions were to be lifted as part of a nuclear agreement later this year, Iran still would need prices close to $140 a barrel to finance the government budget. Crude export revenues finance more than 50 percent of the government's outlays.

Venezuela will also be hurt. The International Monetary Fund says Venezuela needs to sell oil at around $120 a barrel to avoid the threat of national bankruptcy. Bank of America estimates that for every dollar that oil prices drop, the state loses $770 million in net revenue over a year. That puts revenue $12 billion a year below peak levels even if current prices don't fall further.

Venezuela traditionally supports Iran in calling for high oil prices and OPEC meetings and the Saudi price concessions mean it will push that demand even harder at the Nov. 27 OPEC ministerial gathering.

Nigeria also needs a stronger market to flourish. Bismarck Rewane of the Financial Derivatives Consultancy in Lagos says the government had organized its 2015 budget around an oil price of $78 a barrel based on production of 2.4 million barrels a day but the country is pumping only about 2 million barrels a day. He warns that even if oil prices do not fall further, the government will have to revise some of its spending plans.

Angola, Ecuador and other OPEC members with limited production may also suffer but not so Saudi Arabia's wealthy allies Qatar, the United Arab Emirates and Kuwait.

The upshot of the Saudis' willingness to live with low prices to protect their market share in a world of high supplies is that households and companies worldwide may enjoy a period of lower fuel bills.

Adam Slater, senior economist at Oxford Economics, estimates that the recent fall in oil prices could add around 0.4 percent to GDP in the U.S. in two years, and a little less in Europe. China, which is the second-largest oil consumer and on track to become the largest net importer of oil, could see its economy grow an extra 0.8 percent.

This will drive gas prices down even more. We finally are getting near $3 a gallon up here.
I don't have much ammo, but will gladly waste some on you!
Reply With Quote
The Following User Says Thank You to Jackass master For This Useful Post:
  #2 (permalink)  
Old 11-06-2014, 01:57 AM
saltwn's Avatar
PW Enlightenment
Join Date: Oct 2007
Location: Esto perpetua
Posts: 87,321
Thanks: 56,906
Thanked 26,776 Times in 19,233 Posts
Send a message via AIM to saltwn Send a message via MSN to saltwn Send a message via Yahoo to saltwn
Default Re: OPEC shaken by Saudi price move

Oh gosh I hope we don't have to go hunt down the saudi family and hang them too!
I just hate to give up my Christmas spirit.
Reply With Quote

move, opec, price, saudi, shaken

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are On
Pingbacks are On
Refbacks are On

Forum Jump

All times are GMT -5. The time now is 05:51 PM.

Powered by vBulletin® Version 3.8.7
Copyright ©2000 - 2022, vBulletin Solutions, Inc.

Content Relevant URLs by vBSEO 3.2.0