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That's like say someone didn't kick you in the face, physics kicked you in the face! Of course it's supply and demand, and OPEC is manipulating the market by o

by xux 11y ago

That's like say someone didn't kick you in the face, physics kicked you in the face! Of course it's supply and demand, and OPEC is manipulating the market by oversupplying the market and driving every other player out of business. On the surface, it seems like they're doing everyone a favor by driving the price down, but as soon as other players exit, they'll raise it up sky high as the monopoly supplier. This is a classic strategy that is now outlawed in the U.S. because of what Standard Oil / Rocketfeller did in the 19th century. OPEC is getting away with it because there's no international law that forbids predatory pricing. Don't let the Saudis fool you. Oil accounts for 80% of their GDP and the low price is completely unsustainable for them. They have no intention of keeping the price low forever, just long enough to burn other producers.

pmelendez 11y ago
> Of course it's supply and demand, and OPEC is manipulating the market by oversupplying the market I don't think that is true. OPEC production hasn't been greater than how it was in Apr 2012 or Apr 2008 [1] Non-OPEC production on the other hand... well ... [2] [1] http://oilprice.com/Energy/Crude-Oil/OPEC-Production-By-The-Numbers.html http://oilprice.com/Energy/Crude-Oil/OPEC-Production-By-The-... [2] http://peakoilbarrel.com/non-opec-charts/ http://peakoilbarrel.com/non-opec-charts/
- xux 11y ago
  OPEC Pumps at Three-Year High Despite Oil Glut http://www.wsj.com/articles/opec-pumps-at-three-year-high-despite-oversupply-1439290204 http://www.wsj.com/articles/opec-pumps-at-three-year-high-de... Relevant paragraph: "But in the current downward price spiral, the group has kept pumping, a move aimed at protecting market share, instead of prices. The strategy comes as a flood of new oil—including U.S. shale output and new OPEC production—hits at a time when demand forecasts remain cloudy. The result has been market oversupply, and sharply falling prices."
  - zubiaur 11y ago
    Why should the OPEC stop pumping? Why is it expected that the OPEC has to regulate prices? Lifting prices, the cost of bringing oil to the surface, are much higher in the US than in the most important OPEC producers. Regulating the price by limiting supply would benefit non OPEC, high lifting cost producers the most. This are different times, now OPEC is letting the market, governed by supply and demand set the prices. The expectation before was that non OPEC countries would produce as much as they could and OPEC would supply the leftover demand. It was called "The Call on OPEC" that was back when the US was a net importer. Now the US producers more oil than what it imports. Heck, is producing more oil than Saudi Arabia! This article explain quite well how the call on OPEC used to work and why it is crazy in today's environment: http://blogs.platts.com/2015/01/02/opec-call-price-collapse/ http://blogs.platts.com/2015/01/02/opec-call-price-collapse/ Edit: excuse my English, is not m my native language and this was written on a phone.
    - CapitalistCartr 11y ago
      The USA are still a net importer of oil, and OPEC are called upon to manage the price of oil because they put themselves in that position by doing so repeatedly since 1973.
      - zubiaur 11y ago
        Is it? http://www.energy.gov/maps/us-crude-oil-production-surpasses-net-imports http://www.energy.gov/maps/us-crude-oil-production-surpasses... The OPEC was able to put itself in that position due to limited worldwide supply. That has changed. Its no longer rational nor convenient for them be a supplier of the spare demand in an environment where doing so would keep prices high and encourage investment in oil production capacity outside OPEC, thus further eroding spare demand and market share.
        PhantomGremlin 11y ago
        The grandparent post said: The USA are still a net importer of oil that is still true. What the graph you linked to tells you is that the USA is now producing more than 50% of its total consumption. It still imports the rest. You need to sum both entries on your graph to get the total. E.g. here's a quote from another govt agency: In 2014, the United States consumed a total of 6.97 billion barrels of petroleum products, an average of about 19.11 million barrels per day. http://www.eia.gov/tools/faqs/faq.cfm?id=33&t=6 http://www.eia.gov/tools/faqs/faq.cfm?id=33&t=6
codeflo 11y ago
But how would they prevent other producers from re-entering the market once the price rises again? Capital requirements are not a huge barrier to entry when you're competing against governments.
- TheOtherHobbes 11y ago
  By crippling other competing governments - especially Iran, Russia, and Brazil, all of whom are struggling now - and trying to drive competing energy technologies out of the market. The problem is that Saudi wealth isn't infinite, and as a petro-feudal patronage state with a lot of internal stresses it's not obvious the Saudis can afford to see things through to the end.
  - toomuchtodo 11y ago
    Lets hope the House of Saud burns up its sovereign funds before they do permanent macroeconomic damage.
imaginenore 11y ago
> they'll raise it up sky high as the monopoly supplier. No, they won't. There are still multiple producers, and still lots of reserves, and still lots of shale oil sites waiting to be reopened as soon as the price goes up enough. And don't forget, all that "manipulation by OPEC" was actually increased production by the US: https://marketrealist.imgix.net/uploads/2015/10/US-crude-oil-production.png https://marketrealist.imgix.net/uploads/2015/10/US-crude-oil... And the production didn't really slow down because of the price collapse, it only forced the small players to freeze their operations: http://pbs.twimg.com/media/B-3swI7UcAAlnEd.png http://pbs.twimg.com/media/B-3swI7UcAAlnEd.png As is, there's a pretty hard limit on how high the price can go.

by xux 11y ago

pmelendez 11y ago

> Of course it's supply and demand, and OPEC is manipulating the market by oversupplying the market I don't think that is true. OPEC production hasn't been greater than how it was in Apr 2012 or Apr 2008 [1] Non-OPEC production on the other hand... well ... [2] [1] http://oilprice.com/Energy/Crude-Oil/OPEC-Production-By-The-Numbers.html http://oilprice.com/Energy/Crude-Oil/OPEC-Production-By-The-... [2] http://peakoilbarrel.com/non-opec-charts/ http://peakoilbarrel.com/non-opec-charts/

xux 11y ago
OPEC Pumps at Three-Year High Despite Oil Glut http://www.wsj.com/articles/opec-pumps-at-three-year-high-despite-oversupply-1439290204 http://www.wsj.com/articles/opec-pumps-at-three-year-high-de... Relevant paragraph: "But in the current downward price spiral, the group has kept pumping, a move aimed at protecting market share, instead of prices. The strategy comes as a flood of new oil—including U.S. shale output and new OPEC production—hits at a time when demand forecasts remain cloudy. The result has been market oversupply, and sharply falling prices."
- zubiaur 11y ago
  Why should the OPEC stop pumping? Why is it expected that the OPEC has to regulate prices? Lifting prices, the cost of bringing oil to the surface, are much higher in the US than in the most important OPEC producers. Regulating the price by limiting supply would benefit non OPEC, high lifting cost producers the most. This are different times, now OPEC is letting the market, governed by supply and demand set the prices. The expectation before was that non OPEC countries would produce as much as they could and OPEC would supply the leftover demand. It was called "The Call on OPEC" that was back when the US was a net importer. Now the US producers more oil than what it imports. Heck, is producing more oil than Saudi Arabia! This article explain quite well how the call on OPEC used to work and why it is crazy in today's environment: http://blogs.platts.com/2015/01/02/opec-call-price-collapse/ http://blogs.platts.com/2015/01/02/opec-call-price-collapse/ Edit: excuse my English, is not m my native language and this was written on a phone.
  - CapitalistCartr 11y ago
    The USA are still a net importer of oil, and OPEC are called upon to manage the price of oil because they put themselves in that position by doing so repeatedly since 1973.
    - zubiaur 11y ago
      Is it? http://www.energy.gov/maps/us-crude-oil-production-surpasses-net-imports http://www.energy.gov/maps/us-crude-oil-production-surpasses... The OPEC was able to put itself in that position due to limited worldwide supply. That has changed. Its no longer rational nor convenient for them be a supplier of the spare demand in an environment where doing so would keep prices high and encourage investment in oil production capacity outside OPEC, thus further eroding spare demand and market share.
      - PhantomGremlin 11y ago
        The grandparent post said: The USA are still a net importer of oil that is still true. What the graph you linked to tells you is that the USA is now producing more than 50% of its total consumption. It still imports the rest. You need to sum both entries on your graph to get the total. E.g. here's a quote from another govt agency: In 2014, the United States consumed a total of 6.97 billion barrels of petroleum products, an average of about 19.11 million barrels per day. http://www.eia.gov/tools/faqs/faq.cfm?id=33&t=6 http://www.eia.gov/tools/faqs/faq.cfm?id=33&t=6

codeflo 11y ago

But how would they prevent other producers from re-entering the market once the price rises again? Capital requirements are not a huge barrier to entry when you're competing against governments.

TheOtherHobbes 11y ago
By crippling other competing governments - especially Iran, Russia, and Brazil, all of whom are struggling now - and trying to drive competing energy technologies out of the market. The problem is that Saudi wealth isn't infinite, and as a petro-feudal patronage state with a lot of internal stresses it's not obvious the Saudis can afford to see things through to the end.
- toomuchtodo 11y ago
  Lets hope the House of Saud burns up its sovereign funds before they do permanent macroeconomic damage.

imaginenore 11y ago

> they'll raise it up sky high as the monopoly supplier. No, they won't. There are still multiple producers, and still lots of reserves, and still lots of shale oil sites waiting to be reopened as soon as the price goes up enough. And don't forget, all that "manipulation by OPEC" was actually increased production by the US: https://marketrealist.imgix.net/uploads/2015/10/US-crude-oil-production.png https://marketrealist.imgix.net/uploads/2015/10/US-crude-oil... And the production didn't really slow down because of the price collapse, it only forced the small players to freeze their operations: http://pbs.twimg.com/media/B-3swI7UcAAlnEd.png http://pbs.twimg.com/media/B-3swI7UcAAlnEd.png As is, there's a pretty hard limit on how high the price can go.