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I see this statement often that renewables have reduced our demand for oil, but that doesn't seem to be the case and I don't think it explains the price drop:
by joakleaf 11y ago
I see this statement often that renewables have reduced our demand for oil, but that doesn't seem to be the case and I don't think it explains the price drop:
https://www.eia.gov/forecasts/steo/report/global_oil.cfm
It looks more like the market is being flooded with oil.
The price of oil is probably unsustainable for all produceres at these levels. Either the price will have to increase or the number of producers will decrease.
I read somewhere that the Middle Eastern countries can continue at these levels for about 5 more years. My guess is that they will try to squeeze as many competitors out of the market as possible, increase demand, and scare off any potential future investments in competing energy producers (alternative or conventional) for the following decade.
- arethuza 11y agoI was surprised to see that the Saudis are considering selling shares in Aramco - I wonder if the House of Saud is about to make a strategic retreat to their palaces on the Riviera? [NB It is entirely possible I have been reading too much Robert Baer and watching too much Adam Curtis].
- joakleaf 11y agoAn IPO of Aramco is indeed a peculiar move: http://www.economist.com/news/middle-east-and-africa/21685529-biggest-oil-all-saudi-arabia-considering-ipo-aramco-probably I wonder why. Anyone?
- arethuza 11y agoA lot of possible reasons - a bug out fund, paying for other people to do their fighting for them if a war kicks off with Iran, propping up their troubled economy, paying off Wahhabis...
- Afforess 11y agoBest explanation I've read is an IPO boosts the Saidi treasury so it can last until 2025 under the current oil prices. Current projectIons without the IPO only show the treasury lasting until 2020 before Saudi Arabia has to issue debt to cover their spending. It seems unlikely foreigners will service Saudi debt without high interest rates and even so, Saudi would not be able to pay it back. If Saudi Arabia can make it to 2025, it seems highly likely the decade of cheap oil will have destroyed the fraking/tar-sands oil company holdouts in the U.S. The House of Saud is one of cards, and they know it. Their social contract is one of regular, large oil payments to citizens, not patriotism. This social contract will die when the money does, and so too will the nation. Money can paper over a broken society, but it won't build the sort of national unity you need for a successful nation state.
- arethuza 11y agoIt does look like they have been selling a lot of assets to fund their current budget deficit: http://www.bloomberg.com/news/articles/2015-09-28/saudi-arabia-has-withdrawn-billions-from-markets-estimates-show http://www.bloomberg.com/news/articles/2015-09-28/saudi-arab... And they already seem to have started issuing bonds: http://www.wsj.com/articles/saudi-arabia-issues-bonds-worth-5-billion-to-plug-budget-shortfall-1439305126 http://www.wsj.com/articles/saudi-arabia-issues-bonds-worth-... Maybe the Aramco thing is just part of this fire sale to try and prop everything up on the hope that, in the long term, a rise in oil prices will come to their rescue?
- maxerickson 11y agoIs frakking best looked at as a bunch of capital trying to hold out against low prices? Seems like it is a technology that won't be forgotten in just 10 years.
- stcredzero 11y agoIt looks more like the market is being flooded with oil. The oil producers with large reserves know that much of it is going to have to stay in the ground, so they are having a fire sale while they can.