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Saudi won’t. UAE won’t. Russia won’t. Hmmm…, the US? November 26, 2014

Posted by hslu in China, Cold War, Economics, Energy, Global Affair, Middle East, Oil, Politics.
Tags: , , , , , ,

Maybe US should.

Imaging, please, for just one nano-second of a press conference announcement from DOE in Washington, DC:

EOG, WLL, CXO, SRE, CLR, XOM, CVX, PXD and COP have agreed that they will cut their U.S. production by 2 million barrels per day starting January 1, 2015.

What will that do to the oil price and stocks of foreign oil companies?

Nah. It won’t happen.

But, aren’t some of them the ‘始作俑者’ of oil price decline by 30+% since June?

The best way to achieve a stable oil price is every oil producing country cut its oil production by about 2.5% because there is 2 million barrels of  excessive oil production in the world.

Nah, that won’t happen either.

Every country is in it for itself. The one which carry the biggest stick dictates the outcome.

And we are talking about Saudi. Period.

I talked about America acted like a ‘敗家子’ when it comes to producing shale oil without any consideration of long term national security in an earlier post on my blog.


Source: Businesd Insider.

Now, it is likely that Saudi will let the crude oil market to stablize itself.

With the total production costs of American shale oil around $60-$80/bbl vs Saudi oil’s $20/bbl, there is no argument here who is the onw with a big stick.

Imaging for a minute now, what if Saudi let oil price drops to $60/bbl and keep it for 2 years.

Of course, there is a consparicy that White House told Saudi to keep oil production up so that Russia will be weakened as a new run of cold war begins to take shape.

Well, your guess is as good as mine on this.

Do you know who is the biggest beneficiary on this?

Yes, you guessed. It is China.

China gets to import cheaper oil and it will save ‘BIG MONEY’ because it is the largest oil importer in the world. China will buy even more oil than its economy requires because China is building its strategic oil reserve from the current 10 day supply, or about 91 million barrels, to about 90 days of net import. China still has a long way to go so that it will take the opportunity to ‘fill it up’ with cheap oil.

Americans will benefit because we will keep more money in our pockets instead of sending it into oil producing countries. But, the only bright spot of the US economy, shale oil productions, drilling and oil transportation by rail will suffer. CAPEX spending will be cut. Marginal project will be delayed or eliminated. Finally, pink slips will fly. ‘敗家子’ will be broke again. Oil import to the US will rise.

Crude oil market will finally stablize again.

Big stick has spoken.

We will see what comes down after November 29.



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