Tag Archives: #OPEC

Saudi Arabia – A Kingdom In Retreat

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The Kingdom is struggling with weak GDP growth, higher fees and taxes, and an economy that is unable to pay the dues to its workers, leaving thousands of workers from South Asia with an uncertain future.

When a nation is unable to provide food to its migrant workers, it says a lot about their financial condition.

The oil price crash has forced the oil-rich Kingdom to introduce austerity measures, and delay payments to already cash-strapped contractors.

“It looks like austerity has hit hard and more than we had anticipated, halting construction projects and stopping hiring,” said Jason Tuvey, Middle East economist at Capital Economics, reports the Financial Times.

Who is the Hardest Hit?…Construction laborers from India and Pakistan are most affected by the Kingdom’s hardships. This group of workers are left without a job, and without basic amenities such as insurance coverage, food, shelter and medical facilities—a situation that has improved after respective consulates stepped in to offer their own citizens aid.

Saudi’s Empty Pockets…Setting aside the Kingdom’s positive outlook, until the Saudi economy reduces its reliance on oil, the situation is likely to get worse before it gets any better. With oil prices reeling close to $42 a barrel, the Saudi economy is likely to run out of cash, according to the International Monetary Fund.

“All oil exporters will need to adjust to the new low oil price,” the IMF warned, reports the Independent. “All” in this case, includes, probably most importantly, Saudi Arabia.

Meanwhile, Saudi Arabia continues its record oil production, reaching 10.67 million barrels per day, up about 120,000 bpd on the prior month—with no signs of slowing. Although this will allow Saudi Arabia to hold onto its marketshare, which they can hardly be blamed for trying to cling to, it will no doubt add to the supply glut, and certainly will not bode well for oil prices in the short term.

In conclusion…And if oil prices continue to languish near today’s lows, it will be years before Saudi Arabia can regain its erstwhile glory.

 Source: Oil Price.com, Is Saudi Arabia About To Cry Uncle In the Oil Price War, By Rakesh Upadhyay – Aug 11, 2016

Crude Prices Rise On OPEC Statement

Barrels of Oiloil-workers

OPEC Commnets...While the Organization of the Petroleum Exporting Countries (OPEC) no longer wields the same power over global oil markets it had 40 years ago, it can still make some noise when it wants to. And Monday, OPEC wanted to.

The cartel’s new president, Mohammed Bin Saleh Al-Sada, who is also Qatar’s oil minister, said in a statement that he expects higher oil demand in the second half of 2016. These words tacked a gain of around 3% onto crude prices.

Al-Sada added that prices have experienced “steady improvement” since February following “a decline in crude oil production, supply outages and a decrease in oil inventories, while global demand for oil improved.” He also added that the recent (current?) decline in prices and higher volatility is “only temporary,” according to the press release:

These are more of an outcome resulting from weaker refinery margins, inventory overhang – particularly of product stocks, timing of Brexit and its impact on the financial futures markets, including that of crude oil.

Since June 1, the price for an OPEC reference basket barrel has dropped from $44.68 to $40.08, more than 10%. The reference basket price rose by nearly $1 as of July 1, but it’s been steadily downhill since then.

In Conclusion...Is OPEC just talking its book, hoping to push up the price? While it wouldn’t be the first time that has happened, it is more probable that the cartel, like the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA), really believes that global demand will rise, global inventories of oil and refined products will fall and production will continue to slow down, especially in North America.

U.S. Now Largest Global Oil Reserve

 The United States has surpassed Saudi Arabia and Russia as the global leader in oil reserves.  This from a Norwegian consultancy firm report.

“We have done this benchmarking every year, and this is the first year we’ve seen that the US is above Saudi Arabia and Russia,” Per Magnus Nysveen, head of analysis at Rystad Energy, said. He credited the rise to a sharp increase in the number of discoveries in the Permian basin in Texas over the past two years.

The report found that many, especially members of the Organization of Petroleum Exporting Countries, exaggerated the size of their reserves in self-reported surveys. Rystad Energy came to the conclusion by only recording each country’s economically viable reserves.

American oil reserves have grown dramatically in the past two years due to improvements in technology for extracting shale called fracking. Increased productivity has cut the cost of extracting oil in half in the past two years, when compared to the price per barrel.

Nysveen is forecasting the price of the barrel to bottom out soon as supply is beginning to rebalance. “At the end of the year, we will see increases again in US oil production,” he said.

In summary…The future implications of the larger reserves as positive for the US economy. As the world’s largest consumer of oil, the reserves will help cut America’s trade deficit and strengthen the dollar. Geopolitically speaking, the large reserves will prevent oil from being used as a political tool against the United States as it can remain self-sufficient.

The last eight American Presidents have promised independence from foreign oil.  In spite of much opposition, the U.S. oil and gas industry has been using innovation to change the balance of geopolitical power in our favor.

Prices Stabilize On Oil Production Freeze

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West Texas Oil Production

“Since the Saudis and Russia reached an agreement to freeze output, volatility in the market has eased and oil prices have stabilized with the focus shifting back to fundamentals,” said Hong Shug Ki, a senior analyst at Samsung Futures, Inc.  “More stable oil prices are expected in the coming months, possibly up to the $40 level…”

West Texas Intermediate crude climbed more than 30 percent since dropping to lowest level in 12 years.  The pricing on Monday was just short of $36 per barrel.

A contributing factor may be that U.S. production slid for the sixth straight week ended February 26 to 9.08 million barrels a day, the lowest level since November 2014, according to the Energy Information Administration.

Key members of OPEC intend to meet with other producers in Russia this month to renew talks on the freeze deal according to Emmanuel Kachikwu, Nigerian Minister For Petroleum Resources.