Saudi Arabia and the "trillion dollar gambit"

[Razgovory]

I know a bit more about the world oil market, and the economics of it, than you do. 

Grumbler knows all!  He really should start every post with, "I know a bit more about x and y then you do."

Example:  "I'm sorry Malthus, but I know a bit more about Canadian law then you do".

[grumbler]

What is your problem? I haven't even made an argument in this thread. I was only trying to stand up to (rather pathetic) online bullying, from a cranky old troll with apparently nothing better to do than derail promising threads on an internet forum.

Yes, you have made arguments in this thread.  The reason that the "bullying" you think you saw was "pathetic" was, of course, that it was not bullying at all.  It was merely reporting that a linked-to article didn't address the question being asked ("Wondering how languish views SA's attempt to cripple both the Iranian and the US oil industry...").  There is no evidence whatever that there is such an attempt, and the evidence shows, in fact, that such an attempt would not work, because there are multiple oil sources far more vulnerable to price drops than the US (even if Saudi Arabia had the capacity to lower oil prices).

Sorry if the truth derails your "promising" conspiracy thread.  Not sorry if you see the deliverer of the bad news as a "cranky old troll."  I revel in your pathetic insults.

[Admiral Yi]

b) The counterargument is that production is extremely capital intensive and long term in nature. So yeah, the oil is still there, but the entities that invested in the projects expecting $100/barrel oil are losing a fortune. When the price of oil creeps back up to where it may be profitable again, investors will be a bit more gun shy about ramping up production. Or so the argument goes.

My understanding is that exploration is massively capital intensive and front loaded but production is not.

[grumbler]

b) The counterargument is that production is extremely capital intensive and long term in nature. So yeah, the oil is still there, but the entities that invested in the projects expecting $100/barrel oil are losing a fortune. When the price of oil creeps back up to where it may be profitable again, investors will be a bit more gun shy about ramping up production. Or so the argument goes.

My understanding is that exploration is massively capital intensive and front loaded but production is not.

That is correct. IIRC, 60-70% of the "average total cost per barrel" that oil companies estimate comes from exploration costs.  Offshore oil is probably closer to 50-50.

Saudi Arabia is being hurt worse by cheap oil than anyone, because so much of their revenue comes from oil.  At their current rate of depletion, their fiscal reserves will be gone in less than five years.  Kuwait and the Emirates diversified years ago and can keep this up for decades, if not indefinitely.

Saudi oil is the cheapest to produce, but mere production is only a small part of their oil economy.

[DGuller]

Yeah, but that doesn't cripple the US oil industry.  One of the nice things about resource extraction is that the product is still there even if you aren't in production.  So long as you keep hold on the land and maintain the infrastructure you can go back into production when the market is better.  Fortunately the Iranians (and the Russians) are so reliant on oil money they can't just lay off workers and idle their fields.  They need to be producing all the time.  Even if they aren't making as much cash.  A resource based economy really sucks.  Iran and Russia both have the technical expertise to change their economy, but that's difficult and dangerous and quick oil money is so seductive.

It depends on fixed costs.  The higher the fixed costs of oil extraction and exploration, the more effective the predatory pricing strategy is.  And it pays off in multiple ways; not only do you bankrupt the marginal players altogether, but going forward you make future players think twice about investing and raise perceived risk.

[DGuller]

Hamilcar did read the article that he linked to. In his first sentence, he wasn't referring to the article, he was referring to rather widespread speculation that Saudi Arabia is increasing production to lower the price of oil to simultaneously hurt Iran (which is in need of higher prices) and stop significant production in NA (both Canada and the US) by keeping prices at a level so that production there is unprofitable (production costs are much higher than in Saudi Arabia). Unfortunately to understand this, you would need to have some understanding of what is going on in world oil market, and the discourse surrounding it.

Ah, so "widespread speculation" counts as fact for you (and Hamilcar), eh?  Unfortunately for you conspiracy wackos, I know a bit more about the world oil market, and the economics of it, than you do.  I note and reject your attempt to save your argument and counter mine by trying to shift the goal posts to "North American" rather than "US" oil (despite Hami's clear mention of "the US oil industry" as a target).   

The problem with the conspiracy theory is that Iran's ally, Iraq, is the country that is increasing production, not Saudi Arabia.  Saudi production did return to 2012 and 2013 peak levels of production (north of 10m bbd) for periods in 2015, but isn't at that level now, and 2015 production was much like that of 2012 and 2013.  The Saudi oil output data just doesn't fit your conspiracy. 

Further, while tar sands oil production is certainly vulnerable to the current crude oil price slump, typical American oil fields are not.  The expense in US oil isn't production, but discovery.  The UK, Brazil and Nigeria find oil much more expensive to actually bring to market than does the US.  They are the ones that are being hit by the oil price slump.

Now, this isn't to say that Saudi Arabia isn't being as foolish in their energy production decisions as US and other oil companies are, by responding to a price slump by increasing or maintaining production of an irreplaceable product.  But that's mere greed and stupidity.  Never attribute to malice that which can adequately be explained by stupidity.

I'll give you and Hami that same consideration.

I have no dog in this argument, I don't know much about it and it doesn't particularly interest me. 

But what the fuck is the matter with you?  Do you think the tone you're using is in any way appropriate here?  There is something seriously, seriously wrong with you, but whatever it is, taking it out on posters who have done nothing other than start a civil conversation is beyond pathetic.  You are one seriously toxic poster here.

[grumbler]

But what the fuck is the matter with you?  Do you think the tone you're using is in any way appropriate here?  There is something seriously, seriously wrong with you, but whatever it is, taking it out on posters who have done nothing other than start a civil conversation is beyond pathetic.  You are one seriously toxic poster here.

Thanks for the free psychoanalysis, dad, but I'll pass on your moralizing.  I think my tone here fits in well with Languish.  It would probably fit in better if I joined you in telling people I don't know that "there is something s something seriously, seriously wrong with you," but I'll leave that to you.  I don't have the ego, or the stomach, for it.

[DGuller]

I think my tone here fits in well with Languish.

You sure about that?  I don't think coming into innocuous threads with assholiness dialed up to 11 fits at all here.  We may be rough with each other occasionally, but we're not psychos flipping out for no reason at all.  Present company excluded, of course.

[Razgovory]

b) The counterargument is that production is extremely capital intensive and long term in nature. So yeah, the oil is still there, but the entities that invested in the projects expecting $100/barrel oil are losing a fortune. When the price of oil creeps back up to where it may be profitable again, investors will be a bit more gun shy about ramping up production. Or so the argument goes.

My understanding is that exploration is massively capital intensive and front loaded but production is not.

That is correct. IIRC, 60-70% of the "average total cost per barrel" that oil companies estimate comes from exploration costs.  Offshore oil is probably closer to 50-50.

You know, I said it first in this thread, but you didn't say I was correct.

[The Brain]

I think my tone here fits in well with Languish.

You sure about that?  I don't think coming into innocuous threads with assholiness dialed up to 11 fits at all here.  We may be rough with each other occasionally, but we're not psychos flipping out for no reason at all.  Present company excluded, of course.

grumbler knows a bit more about assholiness than you do.

[Eddie Teach]

b) The counterargument is that production is extremely capital intensive and long term in nature. So yeah, the oil is still there, but the entities that invested in the projects expecting $100/barrel oil are losing a fortune. When the price of oil creeps back up to where it may be profitable again, investors will be a bit more gun shy about ramping up production. Or so the argument goes.

My understanding is that exploration is massively capital intensive and front loaded but production is not.

That is correct. IIRC, 60-70% of the "average total cost per barrel" that oil companies estimate comes from exploration costs.  Offshore oil is probably closer to 50-50.

You know, I said it first in this thread, but you didn't say I was correct.

Dorsey said you were, though. 

[grumbler]

You sure about that?  I don't think coming into innocuous threads with assholiness dialed up to 11 fits at all here.  We may be rough with each other occasionally, but we're not psychos flipping out for no reason at all.  Present company excluded, of course.

I'm sure.  I don't think coming into a thread with personal insults and claims that another poster has "something seriously, seriously wrong" (aka "with assholiness dialed up to 11") is very cool.   That behavior's just an example of "psychos flipping out for no reason at all" .  It doesn't fit at all here, but I'll encourage you to do it, because your hyperbolic outrage is a hoot.

[DGuller]

I called you out on your bad behavior.  It wasn't in retaliation on an attack on me, but it was far from unprovoked. 

And yes, something is seriously wrong with you.  Normal people, even ones with really difficult personalities, do not act this way.  I know there is zero chance that at this moment you will take anything I say to heart, but hopefully after some reflection some message will get through that maybe you are conducting yourself in a less than dignified manner.

[Martinus]

So are we seeing another event of the same proportions as 2008 (talking both of Middle Eastern and Asian markets now), or will we simply have these bubble bursts every few years from now on and this is the new normal?

[Admiral Yi]

So are we seeing another event of the same proportions as 2008 (talking both of Middle Eastern and Asian markets now), or will we simply have these bubble bursts every few years from now on and this is the new normal?

Not every decrease in asset prices is a bubble bursting.