Thursday, August 6, 2015

Good News/Bad News

From August 5, 2015 Telegraph:
If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.
The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.
The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6m barrels a day (b/d) into the teeth of the downturn.
Bank of America says OPEC is now "effectively dissolved". The cartel might as well shut down its offices in Vienna to save money.

If the aim was to choke the US shale industry, the Saudis have misjudged badly, just as they misjudged the growing shale threat at every stage for eight years. "It is becoming apparent that non-OPEC producers are not as responsive to low oil prices as had been thought, at least in the short-run," said the Saudi central bank in its latest stability report.

"The main impact has been to cut back on developmental drilling of new oil wells, rather than slowing the flow of oil from existing wells. This requires more patience," it said.
Now you know  why environmentalists are so hostile to fracking.  The good news is lower gasoline prices and improved balance of trade.  Also Saudi private citizens fund much of the Islamic craziness and Muslim evangelism.  The bad news is the only effective counter to Iran and its Obamagift atomic bomb is Saudi.

1 comment:

Allen Cogbill said...

When the price of oil dropped, a number of U.S. producers had to get serious about containing costs, and as a result their production costs were lowered substantially. Still, a lot of exploration and production capacity has been idled as a result of the lower prices, with the concomitant loss in jobs in the industry.