WHAT ARE THE SAUDI'S UP TO ?

[Whirlaway]

Are they trying to destroy the US shale oil industry?

With world oil prices at four year lows; OPEC isn't cutting back on production to drive up world pricing.

It is generally believed that the US shale oil industry needs oil priced above $90/b to be feasible.

Saudis, the hinge producer of OPEC, haven’t so far cut production to keep the price propped up as they have in the past. To the contrary, according to Walter Russell Mead the Saudis are offering price discounts to preserve their market share.

What are they up to?

Are they trying to squeeze domestic oil producers out of the market?

Oil company analysts at Credit Suisse ran a scenario last month looking at the effect of sustained $70 oil on American drillers. They found that “upstream growth momentum would quickly deflate,” with 11% fewer wells completed.

[timpage]

Trying to maintain and maximize profits by undercutting competition? AKA capitalism?

[Whirlaway]

My kind of capitalism is against industries conspiring with each other to fix prices (high or low).......you know, like OPEC.

But you saying that's Ok, I guess.

Why are you such a dumbed down reactionary?

[i'va biggen]

Was a attack on Russian currency till China stepped in.

[Guest032516]

Originally Posted by timpage

Trying to maintain and maximize profits by undercutting competition? AKA capitalism?

Originally Posted by Whirlaway

My kind of capitalism is against industries conspiring with each other to fix prices (high or low).......you know, like OPEC.

But you saying that's Ok, I guess.

Why are you such a dumbed down reactionary?

Actually, Tim is right on this one.

They are not "fixing" prices low. You need cooperation (i.e., production cuts) with other countries in order to "fix" the price per barrel at a high rate.

But you don't need to "fix" prices low. You just unilaterally cut your prices.

There are some antitrust issues if you drive a competitor out of business by cutting prices so low that even you lose money.

But if the Saudis aren't losing money - if they can sell for $75 per barrel and still make money - then that is fair competition. They have ZERO obligation to look out for the welfare of other producers, including American ones.

If the price of oil was artificially inflated to $100 per barrel by cartel arrangements and that artificially high price allowed the American fracking industry to come into existence, then the fracking industry has served a good purpose by smashing the cartel.

But that doesn't mean American fracking operations have to be artificially kept alive by deliberately inflated prices..

[SEE3772]

Funding Al Qaeda... / ISIS / ISIL / IS / ...
Our friends!

[timpage]

Originally Posted by Whirlaway

My kind of capitalism is against industries conspiring with each other to fix prices (high or low).......you know, like OPEC.

But you saying that's Ok, I guess.

Why are you such a dumbed down reactionary?

I'm the reactionary? Read the string again....starting with your OP. Half wit. You're against what the Saudi Arabians are doing because they are the Saudi Arabians. If you think US industries don't fix prices in an effort to gain and maintain market share, you're either a barely functioning idiot or you are posting from Mars.

[Whirlaway]

I wasn't disagreeing with Tim's assertion that the Saudi's were acting rationally. Just wondering why they are letting prices fall. Historically, OPEC reacts quickly to falling prices and cuts production. But not in this case.


I disagree (with Timmy's implied dismissive) that the OPEC practice of dictating world oil prices (high or low) thru collusion is an acceptable kind of capitalism. And make no mistake, the falling prices are sign of turmoil within OPEC. If it results in a breakup of OPEC all the better, but I doubt it.

[Guest032516]

Originally Posted by Whirlaway

I wasn't disagreeing with Tim's assertion that the Saudi's were acting rationally. Just wondering why they are letting prices fall. Historically, OPEC reacts quickly to falling prices and cuts production. But not in this case.

The Saudis are cutting prices because they don't have a choice in the matter.

In the past, OPEC members could fix prices at high levels because there were no real alternatives to their product.

The US producers aren't part of OPEC. And US production is increasing rapidly.

So if OPEC cuts production to maintain $100 per barrel, the US producers pick up the slack by slightly undercutting them ($95) and OPEC members lose market share. US produces then produce even more and take even more market share.

The Saudis have to stanch the bleeding by cutting prices so there is no incentive to switch to US and other non-OPEC sources.

They are behaving rationally.

[Whirlaway]

The Saudi's aren't "cutting prices" .....the price is set by world supply and demand.

And they do have a choice. They can cut production....there isn't a glut of oil production in the world. So the Saudi's (and yes, OPEC) can manipulate pricing thru production.

[lustylad]

I bet the Saudis are asking the same question... "What's the US up to?" letting its fracking/shale industry flood the market and drive down world oil prices?

Of course, we're not really flooding the market. We're just replacing imports with domestic production, thereby freeing up oil supplies for OPEC to sell elsewhere. Our imports peaked at 12.55 million barrels per day in 2005. Today they are running at around 7.5 million bpd and dropping fast.

[Guest032516]

Originally Posted by Whirlaway

The Saudi's aren't "cutting prices" .....the price is set by world supply and demand.

Plainly not true. That is what the whole point of the article it. Or didn't you read it?

The Saudis are willing to go as low as $80 per barrel to keep US producers from producing more and steal market share back..

That's cutting prices, right?

You need to reduce supply in order to maintain an artificially high price. If the producers don't all agree to reduce supply, then someone gets stuck holding oil they cannot sell at the high price.

But you don't have to do that to lower prices. You simply cut price and when you get more buyers, you increase your output to pick up the extra market share.

Originally Posted by Whirlaway

And they do have a choice. They can cut production....there isn't a glut of oil production in the world. So the Saudi's (and yes, OPEC) can manipulate pricing thru production.

If that was true, then why are they even considering cutting prices? You are now directly contradicting the article.

If OPEC cuts production, prices may rise temporarily, but then the US producers will pump more and more to pick up the slack and more market share and bring the price back down.

The Saudis will end up with a few more dollars per barrel in the short term, but far less barrels overall in both the short term and the long term. Their total revenue will be down. That doesn't help their situation.

Which is why they are finally confronting reality. We may be seeing the end of OPEC.