OPEC Faces $750bn Losses From Market Share Strategy

Interesting. It doesn't sound like they are backing down anytime soon though, just read this thus morning:
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I haven't been following the story, but as I understand it they are trying to slap the face of American production that has been growing far in excess of the global average.


Majority of new production is not economical at the current prices, which is the point.

They were becoming a paper tiger. This is the smartest move Saudi Arabia has made in years. They were propping the price up too much such that people could eat into their oligopoly as it was economically viable.

Oil will go up eventually, once they feel secure that new oil exploration isn't a sound investment anymore and they consolidate a higher market share

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I believe I read that Saudi's break even point on production is somewhere around $10/barrel

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Maybe $10-12 in a few isolated legacy fields. Averaged out across their entire production base it's closer to $26-32. Either way they can hold their breathe the longest.

Looks like Saudis are trying to decrease shale production and reset prices at where shale isn't economically viable for further production

They may lose money short term but protects their market share long term. It also halts this energy efficiency movement which has been trending

The Saudis are in a way acting like the federal reserve. There is a huge deflation in the market, but they do not want to cut interest rates because they think the short term pain is necessary for long term health.

The Saudis are protecting marketshare and taking the losses because they absolutely HATE Iran and view them as a destabilizing influence in the ME.

When these sanctions get lifted, Saudi has basically said we'll use our own production and OPEC as a means to keep the market artificially low and lose our @ss off in order to keep Iran weakened.

Think about it...If and when the Nuke deal gets done, Western Sanctions get lifted, and Iran can now sell its oil again. But...for how much?

What kind of petro market is Iran returning to? One where both it-and its Russian patron-will struggle their @sses off to make any money in.

I think the Saudi's and the US are working together across multiple spectrums-both political (overtly) and economic (subtly and almost counterintuitively to most observers)-to punish Russia and Iran and weaken their influence within the region and globally by extension. The US looks like it's pushing for a deal that will lift sanctions. But even when it does, Iran has its government funding pegged to selling oil at about $130/bl right now based on previous projections.

If a deal gets done in the short term, there will be no market for Iran to "come home to". No one is going to want to invest the money it takes to get their current producing wells retooled nevermind invest in their newer plays.

Not with prices where they are and Iran as unfriendly to outsiders as they are. This puts a huge strain on their economy and I think it's all part of a grand strategy.

Saudi and US get a more stabilized Middle East with Iran less able to project unrest because of their economic issues tied to the price of oil and marketshare issues that Saudis have wrestled control of. They also get a "Nuclear" Iran that's so economically limited that they'll be far, far more subservient actors as a Nation-State.

At least that's what I feel like is the hope of both Saudis and the US when I see these pieces on the board moving.

Just my $0.02...

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kingbob

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OPEC is playing the Wal-Mart game. They are cutting prices because their unit costs associated with production are much lower then their rivals. The price drops below economic viability for their rivals with higher unit costs. Their rivals go out of business, leaving OPEC with much greater market share. Once enough competitors are gone so people no longer have much of a choice but to buy from OPEC, they raise the prices and reap the profits. OPEC is trying to re-corner the market (by destroying American fracking) and hurt Russia in the process.

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I think it's a long-term strategy that was done with US and SA to glut the market for when Iran comes back. They want regime change there to bring stability in the ME and for Saudi to control/dominate the area politically. Now that all the demand is online, they're keeping it there waiting for Iran to get their oil out there, and then they'll blame them when it craters even more, and hopefully Iran gets crushed economically in the process just as it comes out of Sanctions.

A couple things.

Iran is still making $, or would be if the sanctions were dropped, just not near enough to meet their budget.


SAs strategy is a multifaceted win for them with originally their biggest goal imo in stopping US shale production. Now with BO stupid arse trying to give Iran nukes it has likely pushed that to a top priority as well. As stated before US shale is now the swing production. However SA know that many of the shale producers are very over leveraged and a extended time of these depressed prices will sink many. This will have the pieces being picked up by the majors and other corps for cheap who do not have to rely on constant production from these assets. In turn producing them when most valued while keeping the market from becoming over saturated. They gain market share, hurt their biggest competitors and keep the US gov happy.