{"id":10246,"date":"2015-01-15T19:02:39","date_gmt":"2015-01-15T19:02:39","guid":{"rendered":"https:\/\/stateofthenation2012.com\/?p=10246"},"modified":"2015-01-15T19:04:00","modified_gmt":"2015-01-15T19:04:00","slug":"how-opec-weaponized-the-price-of-oil-against-u-s-drillers","status":"publish","type":"post","link":"https:\/\/stateofthenation2012.com\/?p=10246","title":{"rendered":"How OPEC Weaponized the Price of Oil Against U.S. Drillers"},"content":{"rendered":"

How OPEC Weaponized the Price of Oil Against U.S. Drillers<\/span><\/p>\n

By Grant Smith
\nBloomberg.com<\/p>\n

\"Photographer:<\/a>

Photographer: Daniel Acker\/Bloomberg<\/p><\/div>\n

Shale oil production in North Dakota, U.S.<\/em><\/p>\n

If there ever was doubt about the strategy of the Organization of Petroleum Exporting Countries, its wealthiest members are putting that issue to rest.<\/p>\n

Representatives of Saudi Arabia, the United Arab Emirates and\u00a0Kuwait<\/a>\u00a0stressed a dozen times in the past six weeks that the group won\u2019t curb output to halt the biggest drop in crude since 2008. Qatar\u2019s estimate for the global oversupply is among the biggest of any producing country. These countries actually want — and are achieving — further price declines as part of an attempt to hasten cutbacks by U.S. shale drillers, according to Barclays Plc and Commerzbank AG.<\/p>\n

Crude fell 48 percent last year and has declined 35 percent since OPEC affirmed its output target on Nov. 27. That decision, while squeezing revenues for OPEC members in 2015, aims at preserving their market share for years to come.<\/p>\n

Oil Prices<\/a><\/p>\n

\u201cThe faster you bring the price down, the quicker you will have a response from U.S. production — that is the expectation and the hope,\u201d said Jamie Webster, an analyst at consultants IHS Inc. inWashington<\/a>. \u201cI cannot recall a time when several members were actively pushing the price down in both word and deed.\u201d<\/p>\n

Holding Out<\/h2>\n

U.S.\u00a0crude production<\/a>\u00a0totaled 9.13 million barrels a day last week, up about 1 million barrels from a year ago and 49,000 from the OPEC meeting in November. Horizontal drilling and hydraulic fracturing in underground shale rock have boosted output by 66 percent over the past five years. Exports, still limited by law, reached a record 502,000 barrels a day in November, according to the Energy Information Administration.<\/p>\n

\"\"<\/a>
Photographer: SeongJoon Cho\/Bloomberg<\/figcaption>
\n

The group will stand by its decision not to cut output even if prices fall and wait at…\u00a0Read More<\/a><\/p>\n<\/div>\n<\/figure>\n

The four Middle East OPEC members are counting on combined reserve assets estimated by the International Monetary Fund at $826.4 billion to withstand the plunge in prices. Petroleum represents 63 percent of their exports. At least 10 calls and several e-mails to the oil ministries of all four countries on Jan. 7 and yesterday weren\u2019t answered.<\/p>\n

The price decline will cost all 12 OPEC members a total of $257 billion in lost revenue this year, according to the EIA.\u00a0Venezuela<\/a>has a 93 percent chance of defaulting on its debt over the next five years, according to CMA, a data provider owned by McGraw Hill Financial Inc. President Nicolas Maduro said Dec. 13 that \u201cthere is no possibility of default\u201d and on Jan. 7 that the country has \u201cthe capacity to obtain the financing\u201d it needs.<\/p>\n

Maintain Course<\/h2>\n

OPEC won\u2019t reverse course even if oil prices fall as low as $20 a barrel or\u00a0non-OPEC<\/a>\u00a0countries offer to help with production cuts, Saudi Arabian Oil Minister\u00a0Ali Al-Naimi<\/a>\u00a0said in an interview with the Middle East Economic Survey on Dec. 21. The kingdom may even bolster output if non-OPEC nations do so, he said. The global oversupply is 2 million barrels a day, or 6.7 percent of OPEC output, Qatar estimates.<\/p>\n

The group will stand by its decision not to cut output even if prices fall and wait at least three months before considering an emergency meeting, U.A.E. Energy Minister Suhail Al-Mazrouei said Dec. 14. He said clearing the surplus may take years, Abu Dhabi-based newspaper The National reported Jan. 6.<\/p>\n

OPEC has no plans to meet before its next scheduled conference in June, Kuwaiti Oil Minister Ali al-Omair said on Dec. 16. Prices will recover in the second half as oil producers with the highest costs are compelled to scale back operations, he said.<\/p>\n

\u2018Swift Fall\u2019<\/h2>\n

It wouldn\u2019t be the first time U.S. drillers are caught up in an OPEC battle for market share. In 1986, Saudi Arabia opened its taps and sparked a four-month, 67 percent plunge that left oil just above $10 a barrel. The U.S. industry collapsed, triggering almost a quarter-century of production declines, and the Saudis regained their leading role in the world\u2019s oil market.<\/p>\n

\u201cIt seems in their interest to have a swift fall rather than a slow, grinding fall,\u201d Miswin Mahesh, an analyst at Barclays in London, said by phone. \u201cA swift drop in prices would bring more changes to non-OPEC supply,\u201d while a more gradual decline would let companies in other oil nations \u201cmerge and become more efficient.\u201d<\/p>\n

Not all share this view. UBS Group AG analysts said that hastening a price slump isn\u2019t a practical strategy because oil demand and supply respond too slowly to price changes.<\/p>\n

Undermine Prices<\/h2>\n

\u201cI doubt that they target a lower price,\u201d Giovanni Staunovo, an analyst at UBS in Zurich, said by e-mail on Jan. 5. \u201cSupply and demand are quite inelastic in the short-term.\u201d<\/p>\n

Brent for February settlement decreased 85 cents, or 1.7 percent, to $50.11 a barrel on the London-based ICE Futures Europe exchange. It\u2019s the lowest close since April 28, 2009.<\/p>\n

Saudi Arabian oil ministers sought to undermine prices in the 1980s and 1990s with their public comments, according to Amy Myers Jaffe, executive director of energy and sustainability at the University of California-Davis. The tactic was used to pressure other OPEC members into agreeing to quota changes, she said.<\/p>\n

There are signs that OPEC\u2019s approach is starting to work. Rigs targeting oil in the U.S. declined for the sixth time in seven weeks, by 17 to 1,482 last week, Baker Hughes Inc. said on its website on Jan. 5. There will be a serious decline in U.S. shale oil investment in 2015, Fatih Birol, chief economist of the International Energy Agency in Paris, said on Dec. 22.<\/p>\n

\u201cSome OPEC countries, most specifically Gulf states, obviously think that it\u2019s best to get unpleasant things over and done with,\u201d\u00a0Eugen Weinberg<\/a>, head of commodities research at Commerzbank AG, said by e-mail from\u00a0Frankfurt<\/a>. \u201cThe recent wordings showed they are still firm about this strategy.\u201d<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

How OPEC Weaponized the Price of Oil Against U.S. Drillers By Grant Smith Bloomberg.com Shale oil production in North Dakota, U.S. If there ever was doubt about the strategy of the Organization of Petroleum Exporting Countries, its wealthiest members are … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-10246","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/posts\/10246","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10246"}],"version-history":[{"count":0,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/posts\/10246\/revisions"}],"wp:attachment":[{"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10246"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10246"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10246"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}