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Saudi gambit on oil possibly leading to the collapse of OPEC?


Belesarius
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An interesting read on OPEC and oil prices.  Colli and I were talking on TS, and this is one of the factors in why I kinda expect the collapse of the House of Saud within the next 2-5 years.

 

http://business.financialpost.com/news/energy/how-saudia-arabias-high-risk-oil-gambit-could-destroy-opec-while-feeding-the-isil-monster

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   OPEC is now completely irrelevant, after Saudis dropped prices. Now everybody act on their own, and nobody wants to loose their share of oil market (not exactly a market, but i will refer it in this way for simplicity). Saudis already increased prices for water to decrease speed of their money drain . To exist longer than ~5-7 years they need oil price to be around 80$ (because of amount of state services, that is paid by Saudi royal family, if they needed to cover just a cost, 35-40$ would have been acceptable).

 

   I expect either some action from Saudi politicians to try to decrease negative effect of low income from oil via increasing different payments and taxes, which will give them time to get to the point when low oil prices will become very hard to hold for everybody else. How situation will go from here - IDK. But this is one of possible ways. 

   Another way - they will fail (at least current form of Saudi Arabia), maybe Iran will try to take advantage from this using Houthis and parts of Yemeni army. Hard to say for ure, just my view of situation.

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Are there any patronage networks in the middle east keeping states stable that don't depend on oil wealth?

 

I tend to agree with the article's speculation, I think any blowout won't be even close to contained in Saudi borders.

 

None except maybe Dubai, but they're one tiny island with a ton of infrastructure that's surrounded by states in danger of imploding.

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  • 2 weeks later...

Pump baby, pump.

http://www.bloomberg.com/news/articles/2015-12-04/opec-unity-shattered-as-saudi-led-policy-leads-to-no-limits-ihs9xu51

OPEC abandoned all pretense this week of acting as a cartel. It’s now every member for itself.

 

At a chaotic meeting Friday in Vienna that was expected to last four hours but expanded to nearly seven, the Organization of Petroleum Exporting Countries tossed aside the idea of limiting production to control prices. Instead, it went all in for the one-year-old Saudi Arabia-led policy of pumping, pumping, pumping until rivals -- external, such as Russia and U.S. shale drillers, as well as internal -- are squeezed out of market share.

 

“Lots of people said that OPEC was dead; OPEC itself just confirmed it,” Jamie Webster, a Washington-based oil analyst for IHS Inc., said in Vienna.

 

OPEC has set a production target almost without interruption since 1982, though member countries often ignored it and pumped well above it. The ceiling of 30 million barrels a day, in place since 2011 and now abandoned as too rigid, is no exception. OPEC output has outstripped it for 18 consecutive months, according to data compiled by Bloomberg. Now the organization says it will keep pumping as much as it does now -- about 31.5 million barrels a day -- effectively endorsing limitless output.

 

The oversupply has sent the price of Brent, a global oil benchmark, to a six-year low, triggering the worst slump in the energy sector since the 2008 world financial crisis. It’s cut the profits of major oil companies such as Exxon Mobil Corp. and BP Plc in half while crude-rich countries such as Mexico and Russia have watched their currencies plunge and their coffers shrink.

 

On Friday, there was no talk of even setting a production target that member countries could then disregard.

 

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