Saudi Predicts $200 Oil at Jeddah Meeting: NY Times

ROCKMAN

All so true...and Alaska has it all over Texas when it comes to views. Yep...we need to get around to buying you some day.

jdumars

Rockman, I don't have any links to sources (lazy, I know), but it seems that more and more poor countries are not able to get the crude they need because they've been priced out of the market. While there's no extra demand, demand destruction is masking the true ramifications of the "bumpy plateau." I wrote an analog about this in another thread.

The same effect is being mirrored in the US population right now with people who have high incomes not really caring how expensive gas is. It's a trivial expense to them. But to others, the increase is catastrophic and resulting in changed habits/jobs/lifestyles that either lower or eliminate their need for gasoline. At my company, we're working on a 4 day workweek, flex time, work-at-home, etc. because some people are starting to go in the hole financially because of their commute.
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ROCKMAN

jdumars,

I like your "bumpy plateau" analogy...descriptive on at least two levels. Think I'll steal it....better than the plateau with ridges and ruts i've used before.

Your points are well taken. But analyze your statement about some poor countries being priced out of the market. If these countries are not buying then someone else is. So far I've seen no numbers indicating world demand has decreased (maybe the reality hasn't caught up with the number crunching yet.)

But that wouldn't change my premise: lots of stories about folks protesting because the truely can't afford to pay the new price. But I've asked the same question on several threads and yet no answer: has anyone seen a story about a buyer, with the cash in hand, who has not been able to make a purchase?

The point of my original post was to clarify what "we" are really asking the KSA: it's not to produce more oil but to underbid other producers to take some of their market share. If the KSA does produce an extra 500,000 bo next month and the buyers forecast a demand for that extra oil then the buyers will be willing to pay market price: i.e. no reduction in the price of oil. If the buyers don't forecast an increase in demand than they won't buy the KSA extra production. In this case the only way the KSA can sell the extra cude is to offer it for less than another producer. But if that's the case the KSA doesn't need the extra production. They can simply offer their currently scheduled production for a lower price.

And even if the KSA were to offer 500,000 bo of oil at a discount it wouldn't automaticly mean other producers would drop their prices to compete. Most of the major producers (except for the KSA) readily admit they have reached PO. If you were a producer making much greater income now than you had projected two years ago and now knowing your production is in an unstopable decline, why would you sell your diminishing asset for less at a time when your income is so high. It's actually surprises me that more produces haven't cut back production since I'm sure all could easily meet their income projections by selling less oil then they had anticipated.

I'm a petroleum geologist who doesn't own an oil well. But if I were making 100 bopd and didn't need the extra income why wouldn't I cut back my rate to 50 bopd. My net income would still be higher than I thought it would have been two years ago. And now I've doubled the life of my well. Granted, that wouldn't be a patriotic action to take but you can't argue that it wouldn't be a sound biz decision.

DantesPeak

ROCKMAN-

The simple answer is that if free markets are functioning fairly well, supply and demand will always be balanced by changes to price.

In addition, it appears that worldwide inventories are being drawn down and we will eventually get to a point where they can't be drawn down that much more. If you exclude strategic reserves, we are not very far from that point.

What's likely to happen as we approach the lowest operating level, shortages will occur since supplies are not evenly distributed around the world.

So in a way the Saudis are right for now - supply and demand will be balanced - as long as there are sufficient standby supplies - but the price will rise .
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ROCKMAN

Exactly Dante. "Harsh realities" are just that...harsh. I can be sympathic with those that have difficulty understanding the complex. What I truely despise is the political structure (both R & D) that has the resources to understand the issues but continue to play politics and offer the public false hopes or identified "enemies"

Plantagenet

Here's another SA bigwig predicting continued high oil prices:

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Oil prices "will not come down," OPEC president Chakib Khelil said Tuesday, assuring that the oil cartel has already done what it can on the matter.

"OPEC has already done what OPEC can do and prices will not come down," Khelil told journalists as he arrived for a meeting with EU energy officials in Brussels.

TheDude

Plantagenet

Niagara

I'm bumping my earlier post with yet another prediction, this time from Chakib Khelil, president of OPEC. So here's where the list stands:

-Goldman Sachs predicts $150 by the July 4th weekend

-Russia's Gazprom CEO Alexei Miller says $250 in the "foreseeable future"

-Robert Hirsch weighing in at $500 in the next few years

-Mohammed Abudawood, at Jeddah meeting, calling for $200

-OPEC president Chakib Khelil predicting $150-170 this summer

ROCKMAN

Plantagenet,

Didn't see your question at first: what OPEC member would hold back production now?

I can't answer specificly since I don't know what their income expectations were so I'll substitute myself in their place.

If I were the ruling authority I would look at the increased revenue that I had not planned for when I was doing my projections a couple of years ago. All gov't have a forecast of income/outgo. I doubt two years ago any member had expected $140/bbl right now. If I could cut my production back 30% and still meet my budgetary requirements why wouldn't I. All OPEC members (except the KSA) readily acknowledged they have reached PO. Thus why not save the reserves in the ground. Sure, prices may fall back down but to a level that I had not originally anticipated? Not likely.

I don't personally don't own any oil production right now. But if I could cut production back 50% and still be content with my income...why not if one true feels we're at PO. Not a patriotic attitude but could be wise management of one's personal resources.

DantesPeak

jato

Off topic posts deleted. Please stay on topic and do not feed the troll!
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