Saudi Arabia ramps up war on the US shale gas industry

Discussion in 'General Trading Discussion' started by Alejandri, May 18, 2015.

  1. Alejandri

    Alejandri Member

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    The Middle East's OPEC oil cartel just ramped up its war on the US shale gas industry as new data from Saudi Arabia shows that oil exports in March reached their highest level in 12 years, with production at record levels.

    The equivalent of 7.89 million barrels a day was sold overseas by the Saudi kingdom in March, up from 7.32 million in February and 10% higher than a year earlier.

    Saudi Arabia produced 10.29 million barrels of oil a day in March, according to the Joint Organisations Data Initiative (JODI). That was more than any other nation in the world.

    Saudi Arabia and other OPEC nations are trying to cripple the US shale gas industry by flooding the market with oil and driving down prices to unsustainable levels for the many small operators. So far the tactic seems to be working, with the oil-rig count in the US crashing.
     
  2. Fredrick Jones

    Fredrick Jones Well-Known Member

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    Saudi oil exports where even higher 12 years ago ? Ultimately after the Saudis crash the price of oil, they have to increase the price of oil to make back their loses. If the price increases again, that means the shale oil industry becomes profitable again. Or does Saudi plan to keep the price of oil going up and down like a yoyo. I really don't understand what Saudi's plan is.
     
  3. petesede

    petesede Guest

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    Just my opinion, but I think people are seeing malice where there is just desperation. While Saudi has increased production, their actual income has plummeted. They are not making nearly as much money as they were before even at these production levels. The other thing to keep in mind is that while this is hurting/killing US shale producers, it is also absolutely crushing entire countries like Russia and Venezuela. An argument could be made that US shale producers are much more likely to ´bounce back´ compared to the old, hard-line Russian and Venezuela controllers who are much less nimble.
     
  4. Rainman

    Rainman Senior Investor

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    I remember theories going round that Saudi Arabia and the U.S were working together to "hurt" the Russians. If that was their goal then it did work but prices won't be low forever and apparently Russia has made it quite clear that they are willing to do anything to make some cash. Maybe we'll see the prices creep up a little. That would probably make the Russians reconsider their decision to sell advanced weapons to nations such Iran. It's all politics I think.
     
  5. turt

    turt Guest

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    I think they want to take huge market share so when the market does go sky high, they'll be supplying most of the oil. It's a likely outcome considering that many oil companies are canceling oil exploration and investments.
     
  6. Rainman

    Rainman Senior Investor

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    Their greed might work against them if that's what they are after. What if at that time the others decide to undercut them? Would we be enjoying low gas prices as they fight it out? I hope so.
     
  7. crimsonghost747

    crimsonghost747 Senior Investor

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    Everything below is just my personal opinion.
    The problem was the US "drill baby drill" attitude. Oil as at over $100 a barrel, even in the less than ideal locations the production prices for new shale rigs in North America was somewhere around $90. So companies take a lot of debt and just drill new wells all over the place. After the wells have been completed it's obviously cheaper to keep the project running, resulting in costs of around $60 or so per barrel on average.

    So the Saudis dropped the price momentarily. Us rig count decreasing (as older, not so profitable rigs are being taken out of production) and shale producers freezing their future projects. Saudi needs the money too so obviously this isn't a long term situation but their message is clear. Banks also play a big part in this, back in the day the smaller shale producers could get money easily from western banks because the business was so profitable, now that the banks have seen what the Saudis are willing to do, it's going to be much harder for the North American companies to secure funding (talking about very high leverage situations here) even if oil goes back up.

    To sum it up quickly: this period of uncertainty in oil prices will have a long term effect on how much western oil producers are willing to invest in new projects and how easily and cheaply they can get the funding for these new projects.
     
  8. CarpeNemo

    CarpeNemo Well-Known Member

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    Malice may or may not be involved, but it could be argued that thrashing Russian and American oil exports now stands to make them more in the long run when cost per barrel rises again, and Russia and the US have cut back production. While Saudi Arabia is reaping the rewards, everyone else will be scrambling to get production online, after having shut down facilities and pumps due to lack of profitability.

    I'm thinking it's a longer term domination ploy more than desperation.
     
  9. Sunflogun

    Sunflogun Well-Known Member

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    I am not a big expert in this area, but from what I can understand the US and Saudi Arabia have good relations? Commercial transactions are always aggressive when billions are on the table. What shocks me the most is that with this production the prices still go high!!
     
  10. baudwalk

    baudwalk Senior Investor

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    http://www.telegraph.co.uk/finance/...broke-before-the-US-oil-industry-buckles.html

    A fresh look at Saudi Arabia's financing the effort to put pressure on the US oil industry. Oil futures are volatile and pundits change predictions daily, but this article looks at the problems within SA. Interesting piece IMO.

    I'm still thinking the US oil stocks are close to the bottom of their decline, and I'm holding for the moment. The Keystone pipeline and allowing the export of our oil should help but I don't expect any help out of the current executive and legislative branches of government.
     

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