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Thread: Oil at $75 Means Patches of Texas Shale Turn Unprofitable

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    Re: Oil at $75 Means Patches of Texas Shale Turn Unprofitable

    Quote Originally Posted by cpwill View Post
    KSA can survive for a year if they have to with zero oil profits. They are likely trying to squeeze the Fracking industry out of production, and any hits to Russia (who support regional enemy Iran) is just foreign policy icing on the cake.We might also be seeing a long-term degradation in OPECs ability to steer oil prices.
    I think you are dead on here.

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    Re: Oil at $75 Means Patches of Texas Shale Turn Unprofitable

    Quote Originally Posted by DaveFagan View Post
    Well now, it is even less profitable at $60/barrel. The Saudis do that and it squeezes Russia hard. At the same time the Koch Brothers (famous Republicans and energy developers Chesapeake Oil etc.) get put in a squeeze big time and perhaps won't be able to contribute on quite such a formidable scale. Everybody gets to blame the Saudis, but these things are certainly not predictable and who would conspire geo-politically. Move it all to the CT threads, eh?
    KSA can survive for a year if they have to with zero oil profits. They are likely trying to squeeze the Fracking industry out of production, and any hits to Russia (who support regional enemy Iran) is just foreign policy icing on the cake.We might also be seeing a long-term degradation in OPECs ability to steer oil prices. THAT would be interesting.

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    Re: Oil at $75 Means Patches of Texas Shale Turn Unprofitable

    Quote Originally Posted by cpwill View Post
    KSA can survive for a year if they have to with zero oil profits. They are likely trying to squeeze the Fracking industry out of production, and any hits to Russia (who support regional enemy Iran) is just foreign policy icing on the cake.We might also be seeing a long-term degradation in OPECs ability to steer oil prices. THAT would be interesting.
    Any "squeezing out of production" will only be temporary at best. Therefore the hits to Russia, and Iran for that matter appear to be the primary objective of the Saudis in exchange for US engagement in Iraq and Syria.

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    Re: Oil at $75 Means Patches of Texas Shale Turn Unprofitable

    Quote Originally Posted by MildSteel View Post
    Any "squeezing out of production" will only be temporary at best.
    perhaps, I don't know what the appetite for continued loss is for those companies.

    But KSA has been involved pretty heavily in the anti-Fracking movement here in the U.S., and see that (quite possibly accurately) as their chief competitor. And so a strategy designed to demonstrate to companies that fracking is inherently risky because, if you begin to produce too much, Saudi Arabia will lower oil prices long enough to destroy you is pretty solidly within their MO at this point. So why get in, lose all the initial sunk costs, and then not be able to produce? Better just to suck it up and never get in.

    It's smart. It's what I'd be doing, were I them.

    Therefore the hits to Russia, and Iran for that matter appear to be the primary objective of the Saudis in exchange for US engagement in Iraq and Syria.
    Nah.
    1. In case you haven't noticed, the Saudi's and us aren't exactly on good terms right now
    2. The foreign crises that is closest and most dangerous to the Saudi's is probably a tie between ISIL (which is opposed by Russian backed regimes) and the Huthi taking over Yemen (which a drop in oil prices, if anything, makes worse).

    Meanwhile, loss of the ability to heavily influence the global oil market is an existential threat to the Royal Family. Messing around with Putin is far and away a lower objective.

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    Re: Oil at $75 Means Patches of Texas Shale Turn Unprofitable

    Quote Originally Posted by apdst View Post
    You must hate the crap out of the green industry.
    That and subsidized health care and poor people.

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    Re: Oil at $75 Means Patches of Texas Shale Turn Unprofitable

    Quote Originally Posted by cpwill View Post
    perhaps, I don't know what the appetite for continued loss is for those companies.

    But KSA has been involved pretty heavily in the anti-Fracking movement here in the U.S., and see that (quite possibly accurately) as their chief competitor. And so a strategy designed to demonstrate to companies that fracking is inherently risky because, if you begin to produce too much, Saudi Arabia will lower oil prices long enough to destroy you is pretty solidly within their MO at this point. So why get in, lose all the initial sunk costs, and then not be able to produce? Better just to suck it up and never get in.

    It's smart. It's what I'd be doing, were I them.

    Nah.
    1. In case you haven't noticed, the Saudi's and us aren't exactly on good terms right now
    2. The foreign crises that is closest and most dangerous to the Saudi's is probably a tie between ISIL (which is opposed by Russian backed regimes) and the Huthi taking over Yemen (which a drop in oil prices, if anything, makes worse).

    Meanwhile, loss of the ability to heavily influence the global oil market is an existential threat to the Royal Family. Messing around with Putin is far and away a lower objective.
    The fracking industry will not cause the Saudis to lose the ability to influence the oil market in the near future. One only need look to what is happening now to see this. Therefore there is no existential threat to the Saudis by the fracking industry. Of course the Saudis can hurt the fracking industry by doing this. But like I said before, this will only be temporary because the Saudis are not going to keep selling oil at such deep discounts. When they stop, the price will go back up, and the fracking industry will be back. Therefore, strategically, what is accomplished is a big hit to Russia, something the US wants, and a big hit to Iran, something the Saudis want, as well as the US. In exchange for US engagement in Iraq and Syria, something the Saudis have made public that they want, a temporary loss in profits is a small price to pay.

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    Re: Oil at $75 Means Patches of Texas Shale Turn Unprofitable

    Quote Originally Posted by MildSteel View Post
    The fracking industry will not cause the Saudis to lose the ability to influence the oil market in the near future. One only need look to what is happening now to see this. Therefore there is no existential threat to the Saudis by the fracking industry.
    That's interesting logic right there. A) The Saudi's are responding, possibly effectively, to a potential threat B) therefore it must not be serious.

    Dude, that's like saying A) we have SWAT teams, therefore B) criminals must not be dangerous

    Of course the Saudis can hurt the fracking industry by doing this. But like I said before, this will only be temporary because the Saudis are not going to keep selling oil at such deep discounts.
    Permanently? No. Long enough to wreck U.S. fracking? Possibly.

    When they stop, the price will go back up, and the fracking industry will be back.
    perhaps. But will companies be willing to dive in knowing that they are guaranteed to be shut down in the future by the KSA? It's a legitimate question, and that's what makes this an effective tactic.

    Therefore, strategically, what is accomplished is a big hit to Russia, something the US wants, and a big hit to Iran, something the Saudis want, as well as the US. In exchange for US engagement in Iraq and Syria, something the Saudis have made public that they want, a temporary loss in profits is a small price to pay.
    The Saudi's couldn't give a rats --- what we want. When we told them not to interfere in Bahrain they didn't even bother to take the call, they just sent tanks in. The Smart Power Set has managed to pretty much piss off every ally we had in the region. Russia isn't a big threat to them, and is even a bit of a help to the extent that they are fighting ISIL. Iran, meanwhile, is carving deals with China that are immune to KSA's actions.

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    Re: Oil at $75 Means Patches of Texas Shale Turn Unprofitable

    Quote Originally Posted by cpwill View Post
    That's interesting logic right there. A) The Saudi's are responding, possibly effectively, to a potential threat B) therefore it must not be serious.

    Dude, that's like saying A) we have SWAT teams, therefore B) criminals must not be dangerous
    No that is flawed. The logic is that the fact that Saudis are able to exert such a significance influence on oil prices is evidence that there is no near term, existential threat to the Saudis, from the fracking industry. It means that, near term, meaning over the next year, the Saudis face no existential threat from the fracking industry because the Saudis, can at will exert pressure that can hurt the fracking industry. What you refuse to see is that, the Saudis will only be able to do that temporarily, perhaps a year or two. Over that period of time, the fracking industry simply does not pose a threat to the Saudis. That is not flawed logic.


    Quote Originally Posted by cpwill View Post
    Permanently? No. Long enough to wreck U.S. fracking? Possibly.
    The point is that they can only cause temporary damage to the fracking industry through such tactics. Therefore, strategically speaking, the Saudis are not gaining much by losing money by selling there oil at deep discounts, as any gains they will get from hurting fracking will only be temporary. Therefore the real targets here are Russia and Iran.


    Quote Originally Posted by cpwill View Post
    perhaps. But will companies be willing to dive in knowing that they are guaranteed to be shut down in the future by the KSA? It's a legitimate question, and that's what makes this an effective tactic.
    Of course they will because they know the Saudis can only do that for limited periods of time.

    Quote Originally Posted by cpwill View Post
    The Saudi's couldn't give a rats --- what we want. When we told them not to interfere in Bahrain they didn't even bother to take the call, they just sent tanks in. The Smart Power Set has managed to pretty much piss off every ally we had in the region. Russia isn't a big threat to them, and is even a bit of a help to the extent that they are fighting ISIL. Iran, meanwhile, is carving deals with China that are immune to KSA's actions.
    You are right, the Saudis don't care what we want, they care what they want, which is US engagement in Iraq and Syria. In exchange for this they are willing to drive down prices to hurt Russia, which is something the US wants. Iran is not immune from low oil prices because the Iranian government gets the majority of it's revenue from the sale of oil
    Last edited by MildSteel; 11-28-14 at 11:27 AM.

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    Re: Oil at $75 Means Patches of Texas Shale Turn Unprofitable

    Quote Originally Posted by MildSteel View Post
    No that is flawed. The logic is that the fact that Saudis are able to exert such a significance influence on oil prices is evidence that there is no near term, existential threat to the Saudis, from the fracking industry. It means that, near term, meaning over the next year, the Saudis face no existential threat from the fracking industry because the Saudis, can at will exert pressure that can hurt the fracking industry. What you refuse to see is that, the Saudis will only be able to do that temporarily, perhaps a year or two. Over that period of time, the fracking industry simply does not pose a threat to the Saudis. That is not flawed logic.
    Yes it is. It is (to continue the analogy) akin to saying that because SWAT teams effectively coral criminals, they must not be dangerous, because they are effective at doing so.

    Saudi Arabia perceives the threat from Fracking, which is why they are a big part of the money behind the anti-Fracking movement here in the States. When American production rises enough to force prices to fall without the Saudi's approval and against the express wishes of OPEC, that's absolutely a threat, and probably quite the wake-up call in the ole KSA. This is part of their reaction to recently falling oil prices, just as their push-back against the desire on the part of the rest of OPEC to cut production was. They aren't going to try to hike up prices, they are going to try to underbid and drive fracking companies out of business.

    The point is that they can only cause temporary damage to the fracking industry through such tactics.
    We don't know that yet, and there are intelligent reasons for supposing that they do not believe that is true. Oil exploration and drilling is an industry with massive up-front sunk costs prior to production. If you create the reality that any company or set of companies that attempt to frack oil on a large enough scale will absorb all of those costs and then be driven out of business before they can get enough production to make their money back... you keep a lot of competition from entering the market in the first place.

    Therefore, strategically speaking, the Saudis are not gaining much by losing money by selling there oil at deep discounts, as any gains they will get from hurting fracking will only be temporary. Therefore the real targets here are Russia and Iran.
    Again, this does not follow. Iran is not the Saudi's immediate problem (ISIL and the Huthi are), Russia is a mixed bag (and they sure as hell aren't going to do it because we asked them to), and only rising American production at current poses a realistic existential threat to the Saudi Royal Family.

    Think about it - if what you say is true, and their attempts to drive fracking out of business are doomed to failure, then the Saudi Royal Family is indeed screwed, because they will continue to lose influence over global oil markets meaning that their ability to buy off their populace is now curtailed. A non-nuclear armed Iran is not an existential threat to the Saudi Royal Family. Russia is not an existential threat to the Saudi Royal Family. Loss of the ability to steer oil markets (which is what we saw with the recent reduction in prices) is an existential threat to the Saudi Royal Family.

    Of course they will because they know the Saudis can only due that for limited periods of time.
    The Saudi's can do it for quite a while. A year is my lowball estimate, and that's without any cuts.

    You are right, the Saudis don't care what we want, they care what they want, which is US engagement in Iraq and Syria. In exchange for this they are willing to drive down prices to hurt Russia, which is something the US wants.
    Wrong for a simple enough reason - US involvement in Syria/Iraq is not driven by a deal with the Saudi's, but rather by domestic politics.

    Iran is not immune from low oil prices because the Iranian government gets the majority of it's revenue from the sale of oil
    to China. With whom they already have purchasing agreements that are immune to both sanctions and price fluctuations.

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    Re: Oil at $75 Means Patches of Texas Shale Turn Unprofitable

    Quote Originally Posted by cpwill View Post
    Yes it is. It is (to continue the analogy) akin to saying that because SWAT teams effectively coral criminals, they must not be dangerous, because they are effective at doing so.
    No it is not. You are wrong because you said was that the loss of the ability to heavily influence the oil market is an existential threat to the Saudis, and fracking simply cannot do that in the near term.

    Quote Originally Posted by cpwill View Post
    Saudi Arabia perceives the threat from Fracking, which is why they are a big part of the money behind the anti-Fracking movement here in the States. When American production rises enough to force prices to fall without the Saudi's approval and against the express wishes of OPEC, that's absolutely a threat, and probably quite the wake-up call in the ole KSA. This is part of their reaction to recently falling oil prices, just as their push-back against the desire on the part of the rest of OPEC to cut production was. They aren't going to try to hike up prices, they are going to try to underbid and drive fracking companies out of business.
    Of course the fracking players are competitors and as a result they are a threat, because competition is threat, otherwise it would not be competition. But over the time frame of the next year or two, fracking simply does not pose that type of threat to the Saudis, which is why that strategy yields very little and can be interpreted as an exchange for crippling Russia in exchange for US engagement in Syria and Iraq.

    Quote Originally Posted by cpwill View Post
    We don't know that yet, and there are intelligent reasons for supposing that they do not believe that is true. Oil exploration and drilling is an industry with massive up-front sunk costs prior to production. If you create the reality that any company or set of companies that attempt to frack oil on a large enough scale will absorb all of those costs and then be driven out of business before they can get enough production to make their money back... you keep a lot of competition from entering the market in the first place.
    Yes we do know that because the only way that the Saudis can permanently damage the fracking industry is for them to be able to indefinitely keep the price of oil artificially low, and that is something the Saudis or no one else can do because it takes millions of years for oil to form and we are using oil at a greater rate that is it being replenished.

    Quote Originally Posted by cpwill View Post
    Again, this does not follow. Iran is not the Saudi's immediate problem (ISIL and the Huthi are), Russia is a mixed bag (and they sure as hell aren't going to do it because we asked them to), and only rising American production at current poses a realistic existential threat to the Saudi Royal Family.
    No one is saying Russia is a problem for the Saudis. The Russians are a problem for the US because of the events that are transpiring in Ukraine. Again, in exchange for the Saudis hurting the Russians by driving down the price of oil, the US is agreeing to engage in Iraq and Syria, AND the Saudis have agreed to provide the US with bases to train forces, 5000 is the number I read, that will fight in Syria.

    Quote Originally Posted by cpwill View Post
    Think about it - if what you say is true, and their attempts to drive fracking out of business are doomed to failure, then the Saudi Royal Family is indeed screwed, because they will continue to lose influence over global oil markets meaning that their ability to buy off their populace is now curtailed.
    No, they will continue to be able to buy off their populace because they will continue to be able to sell their oil at the high prices that are the result of a LONG TERM increase in demand for a limited natural resource.

    Quote Originally Posted by cpwill View Post
    A non-nuclear armed Iran is not an existential threat to the Saudi Royal Family.
    Even a non-nuclear Iran is a PERCEIVED threat to the Saudis because of the tension that exists between Sunni and Shia Muslims and as a result of Iran's ability, through it's ability to influence the Shia dominated Iraq, to upset the balance of power in the Middle East.

    Quote Originally Posted by cpwill View Post
    Russia is not an existential threat to the Saudi Royal Family.
    I have repeatedly addressed this point. No need to repeat.

    Quote Originally Posted by cpwill View Post
    Loss of the ability to steer oil markets (which is what we saw with the recent reduction in prices) is an existential threat to the Saudi Royal Family.
    The recent reduction in oil prices is due to the Saudis selling their oil at lower prices.

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