OPEC unity tested by low prices, oil glut

[Omaha Steve]

Source: AP-EXCITE

By GEORGE JAHN

VIENNA (AP) — OPEC oil ministers meeting in Vienna on Thursday are in a bind. Prices are plunging — and in the short term, the cartel may not be able to do much about it.

Expectations that the group would not cut output to support the market saw the global price of oil slump another $1.93 on Thursday to $75.82 a barrel, extending losses since June, when it was as high as $115.

The drop has been driven by a boom in shale production in the United States as well as weakness in some major world economies, causing supply to outpace demand.

OPEC powerhouse Saudi Arabia can weather such lower prices because its coffers are well-padded and its production costs are relatively low. But poorer OPEC members like Venezuela and Nigeria need levels close to $100 or above to fund national budgets. Saudi rival Iran is suffering, too, with the price drop adding to huge revenue losses due to sanctions on its crude sales imposed over its nuclear program.

FULL story at link.



Iraq's Minister of Oil Adil Abd Al-Mahdi speaks to journalists prior to the start of a meeting of the Organization of the Petroleum Exporting Countries, OPEC, at their headquarters in Vienna, Austria, Thursday Nov. 27, 2014. Expectations that the group would not cut output to support the market saw the global price of oil slump another US dollar 1.89 on Thursday to US dollar 75.86 a barrel, extending its losses since June, when it was as high as US dollar 115. (AP Photo/Ronald Zak)


Read more: http://apnews.excite.com/article/20141127/opec_meeting-8f1a065c13.html

[JDDavis]

1. Not that I am complaining about low prices but I ask

Why are prices worldwide dropping so much at this time?

Is demand really that much lower than it was last year at this season?

Do we have more efficient use of oil, or more use of gas instead of heating oil or are commodity speculators "selling short" or something like that? Is there that much more shale oil production than in past years?

It's hard for my brain to get around this kind of global economic issue.

Any help or links I could read to get me to better understanding how and why this is happening now would be most welcomed.

Thanks

[BumRushDaShow]

2. I am hoping the speculators have moved onto something else

The speculation-driven, artificially inflated prices have gone on well past their expiration date. The 2007/2008 start to what became a 7-year feeding frenzy, needs to reach a conclusion for good. The excuses including "geopolitical unrest" or "supply disruptions" (e.g., explosions at refineries, a myriad of "leaking tankers" or as some discovered, many tankers purposely parked in docks to keep supply suppressed, pipeline sabotage, decisions by some of the biggest oil companies to close refineries, etc.), came fast and furious. Hearings and hearings were held. Enough!

A reminder of what happened - http://articles.latimes.com/2008/jan/03/business/fi-oil3

[Yo_Mama]

3. We have a lot more production, and demand is not rising enough to absorb the increased supply

A lot of the increased production is in the US.
http://ir.eia.gov/wpsr/overview.pdf

In the latest 4-week period, US production was up more than 1 million barrels a day over last year's. US net imports of oil/petroleum products are down therefore about 1.2 million barrels a day in the most recent four week period. Petroleum product supply for the US over the recent year is only up less than a percent despite economic growth.

US production is still rising pretty rapidly - for the year, US production is only 8,488 thousand barrels a day, but for the most recent 4 week period it is 9,029 barrels a day.

The global economy is growing, but more slowly than it has been, and therefore there is no hope that the global demand for oil will rise enough to account for increased production. We definitely have a world surplus of over 1.5 million barrels a day, and some are estimating around 2 million barrels a day. The price will fall until demand and supply rebalance.

[hack89]

7. Saudi Arabia is trying to kneecap the US and Canadian oil industries

US and Canadian oil is much more expensive to produce and the Saudis are pumping more oil to drive prices down below the level that US and Canadian producers need to make a profit. The Saudis are trying to maintain their market share - they are alarmed that the US just become the largest oil producer in the world.

[GliderGuider]

8. Here's a link to an explanation

http://euanmearns.com/the-2014-oil-price-crash-explained/

Essentially he's saying that the markets are now being driven by demand, not supply.

We're now into a regime of extreme price sensitivity, where the oil markets respond to small fluctuations in demand with large price swings. Mearns believes that a variation of demand up or down by only 1 million barrels per day (a range of +/- 1.5%) can drive the price through a range of $60 to $100. It's because the world has been on the Peak Oil plateau for a decade, so supply is constrained.

[Cryptoad]

4. Opec is,,,,

irrelevant now that the USA is the largest producer of crude oil.

[safeinOhio]

5. Oil just went under $70/barrel

Saudi's have said screw you. If you want a price war OPEC will win.
Just like the late 80's when they started to flood the markets and put Western oil producers out of business. If you recall the U.S. oil patch went to hell as prices dipped below production cost. Oklahoma and Texas saw unemployment go way up. Now it will include Wyoming and Canada. FRACKING IS OVER. The Canadian oil pipe line is finished. With cost of American fracked oil at $80 to $75/barrel it is over with, as just now oil hit $69.87. OPEC knows once those wells go belly up, they will be in control of prices again.
Once again the President looks good. The Koch Brothers may now suck on an egg. Look to the repubs to start beating the war drums just to try and push up oil again.

[Brother Buzz]

6. All bets are off if Russia was to join OPEC