Anyone have any thoughts or insights on the Middle East and Energy?



Feels like the 1980s - two OPEC members are in a proxy war in Yemen (Saudi and Iran), OPEC is broken and uncoordinated. Nothing Saudi Arabia can do realistically to harm Iran other than launch a supply war with its reserve oil capacity.



If Saudi Arabia floods the market with oil it can offset all US shale drilling curtailment for a few years. We can be back in a 1986 world.



Energy equities especially are pricing in a much different scenario.

Mike

quote:

OPEC is broken and uncoordinated.

Don't think so. Isn't everyone a member of OPEC now? Everyone CERTAINLY honors OPEC pricing. I don't see American or UK producers selling their oil for anything less than OPEC prices! Admittedly West Texas and Brent crude are priced slightly differently.
Peter.

Saudi Arabia's budget is completely dependent on oil exports. Why would the Saudis to bring down oil prices? This is only possible if the government is a puppet one, serves for will of someone else and not for their own country. So a price war is not the best way to win the Saudis over Iran.

quote:

Originally posted by Beretta682E:
Anyone have any thoughts or insights on the Middle East and Energy?



Feels like the 1980s - two OPEC members are in a proxy war in Yemen (Saudi and Iran), OPEC is broken and uncoordinated. Nothing Saudi Arabia can do realistically to harm Iran other than launch a supply war with its reserve oil capacity.



If Saudi Arabia floods the market with oil it can offset all US shale drilling curtailment for a few years. We can be back in a 1986 world.



Energy equities especially are pricing in a much different scenario.

Mike

An interesting subject I have no insight on.

It seems to me that if demand is reduced due to energy efficiency, storage is nearly full, production is exceeding demand,....then the only solution is to lower the price and keep it there.

In order to starve off the Shale Producers, OPEC has to lower the price below Shale's profitability. No matter if OPEC waits 2 or 10 years to raise prices again, shale production will resume when the price meets their profit benchmark.

How does one starve off a competitor that won't go away?

I think they are trying to starve a competitor out of their nuclear weapons program.

The Iranian deal will add 1 mil. barrels to world supply in 2016.

The Saudi's probably feel sold out by US and the West right now. I really don't care about the politics, ethics or anything else about this whole Middle East set up other than the impact on oil prices.

Iran exporting 1 mil barrels a day @ $75 oil is 27 bil. in annual revenue, 2 mil. barrels is $54 in annual revenue.

If Saudis floor oil by increasing production at say $60 a barrel - Iran's 2 mil. barrels make revenue of $44 bil.

$10 bil. less to fund Syria and Yemen.

I think Saudi is going to be very lose with oil production - use spare capacity - keep low oil price for next 2 years.

Try and hurt Iran and at the same time take out US shale producers.

I think real estate in Houston gets cheap and lot of discounted hunts.

Just my 2 cents.

Mike

Could all happen as you describe. I would use $50 WTI. That would make your analysis correct I think if your numbers are Brent.

The media manipulation of oil by market analysts and other financial types with a vested interest in the price of oil are what keeps oil from stabilizing, as much as the threat of new oil coming to market.

As long as these people can use scare tactics to drive the price of oil up or down, these speculators make money. The price of WTI sitting at $50 with little volatility doesn't suit their purpose.

The high-cost producers will be forced to cut back. It's survival of the fittest. If you are a high-cost producer, and heavily leveraged, you are toast. Someone will send you home by paying you pennies on the dollar for your acreage and debt. It's a zero-sum game. Someone gets rich and someone gets zero.

If Iran comes on line at a million, and the U.S. production declines by about that much as high cost wells get shut-in and projects cancelled, the affect of Iranian oil on the price of oil is zip.

I would love to see WTI at $70 to $75 a bbl. We'll see it pretty quick if either Iran or Israel does something stupid.

I just think with this Iran news and Saudi-Iran in a proxy war in Yemen and Syria, there will be over supply of oil primarily from Saudi and also Iranian production coming back on line.

The US high cost producers will have to cut and there is a lot more pain coming in US producers than before the latest middle east new.

We could see low oil - brent and wti - for a few years.

There is also some strange stuff happening with Chinese diesel demand.

Also I don't know why Saudi would want to keep a lot of excess capacity to use as political capital.

Mike

quote:

Originally posted by Beretta682E:
Anyone have any thoughts or insights on the Middle East and Energy?

There is a paper floating around by David Criswell in which he discusses the ramifications of generating ten or twenty tera-watts of power needed for the rest of the world to have the same standard of living as the west. The choices are poor; there is not enough fresh river water to cool that many nuclear reactors, not enough oil, coal, or gas. If there was, there would still be a big problem with cooling as all of our generating engines work from expanding-gas heat engines of one sort or another and are not efficient. Then there is the problem of power distribution and losses.

For about $400 billion a lunar solar power station could be built with mechanized fabrication and assembly. The plan is for the machines to be self-replicating using lunar materials, it's not practical to lift a 20-tera-watt system from earth to the moon (or orbiting the earth either). The receivers can be dispersed to places they are needed and the beams aimed with phased arrays. Ambitious but not out of reach, most of it is 1980s technology. The biggest hitch might be getting enough people together to build the hardware.