On Thanksgiving Day OPEC declined to cut its production of oil. That means Saudi Arabia refused to cut its production whilst all other producers would maintain their production of oil and oil sales. The price of oil has declined since that decision.
One talking point, utterly stupid revealing a complete lack of understanding and knowledge about oil and production in the United States, is the Saudi Arabian move will affect oil production from fracking. These commentators are ignorant.
Most tracked oil is produced at the current market price. More wells are drilled to maintain pressure within a field, not always to produce. Wells must be drilled to maintain production. Many of the wells drilled in 2010 – 2012 produce oils at a lower cost per barrel than the current market price. Much of the expense in drilling involves the drilling rig and specialized employees. Costs of frack-drilling have declined since 2007.
As Americans have demonstrated this oil can be got at quickly, within a year or two. We have railroads to bring in heavy equipment and trucks to move it on site. Warren Buffet, Obama’s friend, owns the primary railroad.
It is a losing proposition for any country to believe it can diminish or stop American oil production through fracking. The UAE attempted to diminish tracking for natural gas by producing a misleading movie starring Matt Damon released in 2012. The UAE has loads of natural gas which it would like to deliver in liquified form to American harbors. Instead, that market is gone.
Who wants big liquified natural gas facilities in America’s harbors? All Americans should raise their hands.
The Saudi Arabians are much smarter than the TV and print people give them credit. They have a product, oil. They have a global market to get the product to. First question, will Saudi Arabia be around as a country?
The Saudis look at Iran, nuclear research and reactors leading to bomb making. Before the bomb became an issue there was a century of mistrust between the Arabs, largely of the Sunni sect of Islam, and the Irans, mostly of the Shiia sect of Islam. What are the Americans doing? Nothing. They just gave the Irans six or eight more months to negotiate a deal, which was supposed to be completed by 2014. A bomb may be forthcoming by the time Obama leaves office.
If Iran does not have money from oil, its nuclear program may slow a lot.
The Russians are the real target of the Saudi move. The Russians produce more than 9,000,000 barrels of oil a day. Much of that oil is produced of the large area of Siberia. It is ordinary oil.
Last month the Russians and Chinese agreed to build an oil pipeline from Russia to China. Who’s going to finance the pipeline? Who’s building it? Will it be built if there is not enough oil to transport? Will it be built if the price of oil is low?
A chunk of Siberian oil has been going west. Sanctions affect those sales. Sanctions affect that production: Maintenance cannot be effectively and efficiently performed on the wells in wide spread fields. The price of oil affects those wells. If it costs $80-90 a barrel to lift and transport Siberian oil, why do it if the oil can be delivered in a harbor with a refinery close by in China for $70?
Production of high priced Russian oil will decline. There will be no drilling and no maintenance. How long will the Russians lose money? The Russians can shut-in the wells, but that means restarting them after maintenance. Sanctions eliminates that possibility. Within a few years Russian production might fall 3,000,000 barrels, not to come back for decades.
Giving the Chinese access to Siberia by way of building a pipeline is a great danger for Russia. In the nineteenth century the Russians Czar compelled the Chinese emperor to hand over a million square miles of Asia. The Chinese want that land returned; to my knowledge Mao was the last Chinese leader to make that claim public. Of course, the Russian Far East is lightly populated, not much opposition for hundreds of millions of Chinese.
Putin is not much of a chess player. He does everything for a minimal gain tomorrow or sometimes next week. He’s becoming buddies with the Chinese much like Stalin got cozy with Hitler in August 1939. That did not turn out well for the Russians.
The Saudi Arabians are not acting maliciously or from hatred or contempt. They are acting according to their national interests, and because they are most affected, the Russians are affected most.