remains within Saudi Arabia’s ability to foster at least a partial
recovery in crude prices on its own. A sharp rally in prices last
Thursday morning was based on comments from Russia’s energy minister
that the Saudis might get the ball rolling on 5% output cuts. That was
quickly refuted and oil gave up much of the gains.
major producers are suffering financially at today’s low prices—while
oil has bounced from its sub-$30 nadir of January, it is still down
nearly 7% in 2016 and nearly 70% from its 2014 peak. And Saudi Arabia
hasn’t forfeited only a couple of hundred billion dollars and counting
in forgone revenue, but also market share.
That has mainly been to a relative newcomer, U.S. shale producers. But going forward it may be to an old adversary: Iran.
A Russian drilling site. Although Russia is pumping more crude than ever, Saudi Arabia still has the upper hand.PHOTO:BLOOMBERG
The Shiite powerhouse isramping up productionfollowing
the lifting of nuclear sanctions. And its export surge is occurring
against the backdrop of ongoing proxy wars in Syria and Yemen. Those
make it difficult for Sunni champion Saudi Arabia to take the lead with
meanwhile, is pumping the most crude ever, hitting a post-Soviet Union
peak. But it may have difficulty maintaining today’s pace given a lack
of investment in its aging Siberian fields. The chief executive of
Russian oil giantLukoilpredicted that Russian output would drop in 2016 for the first time in several years.
then there is the additional wrinkle that Russia is actively on Iran’s
side in Syria. For those reasons, not only have occasional statements
from Russia about nonexistent agreements been something of a bluff, so
too might be the country’s willingness to voluntarily curb its own
In other words, Russia is holding weak cards and the Saudis know it.
That doesn’t necessarily leave the game at a permanent impasse, though.
newest players at the table are U.S. shale producers. They helped the
U.S. to increase output by 80% between 2008 and 2014 and have the
shortest stack of chips at the table.
governments, there is no OPEC of shale to coordinate output or absorb
losses. Instead, there are loans to service and shareholders to placate.
output will keep shriveling at today’s prices as companies slash
spending and many go bust. On top of that, tens of billions of dollars
in deferred capital expenditure from private companies on conventional
oil projects soon will begin to affect output.
oil companies’ pain can help balance the market, but that will take
time. Russian overtures that include political and military concessions
might break the logjam and persuade the Saudis to take the lead on
now, politics, if not economics, suggests the Saudis will remain
all-in. That alone could keep a lid on an immediate oil-price recovery.
ROLAND SAN JUAN was a researcher, management consultant, inventor, a part time radio broadcaster and a publishing director. He died last November 25, 2008 after suffering a stroke. His staff will continue his unfinished work to inform the world of the untold truths. Please read Erick San Juan's articles at: ericksanjuan.blogspot.com This blog is dedicated to the late Max Soliven, a FILIPINO PATRIOT.
DISCLAIMER - We do not own or claim any rights to the articles presented in this blog. They are for information and reference only for whatever it's worth. They are copyrighted to their rightful owners.
Please listen in to Erick San Juan's daily radio program which is aired through DWSS 1494khz AM @ 5:30pm, Mondays through Fridays, R.P. time, with broadcast title, “WHISTLEBLOWER” the broadcast tackle current issues, breaking news, commentaries and analyses of various events of political and social significance.