Falling oil prices....really the work of the Saudis?

[Berkut]

I've heard several times that falling oil prices are the result of SA producing more in an attempt to drive out higher priced oil production.


Is there any actual evidence that is what is happening?

[derspiess]

Not sure if there's evidence, but it makes sense.

[Barrister]

I've heard several times that falling oil prices are the result of SA producing more in an attempt to drive out higher priced oil production.


Is there any actual evidence that is what is happening?

It's not that SA is producing more.

It's that, traditionally, SA's production capacity was so large  that they were a swing producer - when prices went low they would cut down on production in order to prop prices up.

But now, even with rapidly falling oil prices, Saudi Arabia has refused to cut production.

It's not that it's the work of the Saudis, but that the Saudis could do something about if they wanted to, and they aren't.

[Berkut]

Not sure if there's evidence, but it makes sense.

I agree it is very plausible.

But I find these movements in commodities prices interesting, and I want to know WHY. And while this is a plausible explanation, that doesn't make it the right explanation.

[Berkut]

I've heard several times that falling oil prices are the result of SA producing more in an attempt to drive out higher priced oil production.


Is there any actual evidence that is what is happening?

It's not that SA is producing more.

It's that, traditionally, SA's production capacity was so large  that they were a swing producer - when prices went low they would cut down on production in order to prop prices up.

But now, even with rapidly falling oil prices, Saudi Arabia has refused to cut production.

It's not that it's the work of the Saudis, but that the Saudis could do something about if they wanted to, and they aren't.

OK.

But that is radically different from the claim that the REASON prices are falling is a concerted effort by SA to engineer that fall.

There could be a thousand reasons why they don't want to cut production other than a plot to force other producers out...

[crazy canuck]

I've heard several times that falling oil prices are the result of SA producing more in an attempt to drive out higher priced oil production.


Is there any actual evidence that is what is happening?

It's not that SA is producing more.

It's that, traditionally, SA's production capacity was so large  that they were a swing producer - when prices went low they would cut down on production in order to prop prices up.

But now, even with rapidly falling oil prices, Saudi Arabia has refused to cut production.

It's not that it's the work of the Saudis, but that the Saudis could do something about if they wanted to, and they aren't.

OK.

But that is radically different from the claim that the REASON prices are falling is a concerted effort by SA to engineer that fall.

There could be a thousand reasons why they don't want to cut production other than a plot to force other producers out...

Yes there probably are more reasons they don't want to cut production other than that.  But that doesn't mean that SA couldn't do something to try to attempt to reduce or reverse the fall.

[Crazy_Ivan80]

SA probably knows that if oil-prices rise again the more expensive methods become profitable again and production of that type will come back.

[Jacob]

As I understand it, global demand is falling, primarily due to the slow down in the growth of the Chinese economy and the knock on effects from that.

Additional factors I've heard mentioned as contributing the the lessening of demand is the continued growth of alternative energy sources and the fact that the Chinese have filled up their strategic oil reserve, which they'd been adding to over the last decade or so.

So basic supply and demand, really, set the stage for a drop in prices.

Then OPEC met to discuss lowering production to maintain prices -  a month ago or so - as is their wont. I'm told the Saudis basically run OPEC, and OPEC decides not to cut production. Prices continue to fall as demand is still slowing down, while production remains at previous levels.

You could totally look at it as the work of the Saudis, because they apparently have the tools to counter the drop, but the underlying reason is a lessening of demand.

... is my understanding anyhow.

[Barrister]

As I understand it, global demand is falling, primarily due to the slow down the growth of the Chinese economy and the knock on effects from that.

Additional factors I've heard mentioned as contributing the the lessening of demand is the continued growth of alternative energy sources and the fact that the Chinese have filled up their strategic oil reserve, which they'd been adding to over the last decade or so.

So basic supply and demand, really, set the stage for a drop in prices.

Then OPEC met to discuss lowering production to maintain prices -  a month ago or so - as is their wont. I'm told the Saudis basically run OPEC, and OPEC decides not to cut production. Prices continue to fall as demand is still slowing down, while production remains at previous levels.

You could totally look at it as the work of the Saudis, because they apparently have the tools to counter the drop, but the underlying reason is a lessening of demand.

... is my understanding anyhow.

Combined with an increased supply, chiefly from the US.

[Josephus]

The net effect is that it's the Russians who are really hurting from it.

[CountDeMoney]

Then OPEC met to discuss lowering production to maintain prices -  a month ago or so - as is their wont. I'm told the Saudis basically run OPEC, and OPEC decides not to cut production. Prices continue to fall as demand is still slowing down, while production remains at previous levels.

You could totally look at it as the work of the Saudis, because they apparently have the tools to counter the drop, but the underlying reason is a lessening of demand.

... is my understanding anyhow.

The Saudis benefit by being the largest of the high production/low overhead members.  They can withstand sustained low prices the longest, and as long as they benefit in the long term from low oil prices hitting the Russians, the Iranians, and the North American producers all at the same time, they are happy. 

Now Nigeria, Mexico and Venezuela, they're not as fortunate, being low production/high overhead, but they have no pull anyway.

[Viking]

I've heard several times that falling oil prices are the result of SA producing more in an attempt to drive out higher priced oil production.


Is there any actual evidence that is what is happening?

All the inner workings of the Saudi state are nebulous. The motivation is inferred by the Saudis producing at full speed at a time when prices dip. Usually a price dip would be the ideal time to do well maintenance and upgrades. This is not happening, they are producing at full speed. The only thing up for discussion is if it is to screw over the russians, venezuelans and iranians who go bankrupt at 60-80 dollars or if it is to sabotage the nascent shale oil and tar sands production which often become unviable at 60-80 dollars.

So it's up to you to decide, who the Saudis hate more, Putin or George P. Mitchell (the pioneer of shale fracking).

[Jacob]

Why would the Saudi's have a particular animus towards Putin?

And is there anything particular heated between the Saudis and Iran? Is it the ISIL thing in Syria?

[celedhring]

Why would the Saudi's have a particular animus towards Putin?

Syria, I'd guess.

Saudi Arabia sees itself as battling it out for sectarian and political supremacy in the region.

[Viking]

Why would the Saudi's have a particular animus towards Putin?

And is there anything particular heated between the Saudis and Iran? Is it the ISIL thing in Syria?

He's supporting the infidels in Damascus and Teheran. They hate his guts and he hates them right back. Not all hatreds in the world involve americans or israelis.