Saudi Arabia and the "trillion dollar gambit"

[Hamilcar]

Wondering how languish views SA's attempt to cripple both the Iranian and the US oil industry....
Today, the Saudi market is plummeting: http://www.bloomberg.com/news/articles/2016-01-17/iran-stocks-head-for-highest-since-august-after-sanctions-relief

[Eddie Teach]

Futile. The oil will still be there when they want to increase prices.

[mongers]

Whatever topples that kleptocracy the sooner the better; pity it's citizens and the wider Middle East will probably have to suffer.

[Josquius]

Whatever topples that kleptocracy the sooner the better; pity it's citizens and the wider Middle East will probably have to suffer.

Have to disagree there. Lets get Syria and Libya sorted out first.

[grumbler]

Wondering how languish views SA's attempt to cripple both the Iranian and the US oil industry....
Today, the Saudi market is plummeting: http://www.bloomberg.com/news/articles/2016-01-17/iran-stocks-head-for-highest-since-august-after-sanctions-relief

You might want to re-read that article you linked to.  It says nothing about "SA's attempt to cripple both the Iranian and the US oil industry." Probably a good thing, as the whole "it's not the Chinese drop in demand that's lowering oil prices, but a weird conspiracy to do the impossible" shtick is old and tired.

SA would probably not try to 'cripple" a US oil industry that's making record field production of oil.  They'd wait until the US oil industry wasn't at its strongest.

[PRC]

Canadian oil industry has certainly taken a hit, regardless of the cause being Chinese demand down, Saudi conspiracy or whatever else.

[grumbler]

Canadian oil industry has certainly taken a hit, regardless of the cause being Chinese demand down, Saudi conspiracy or whatever else.

That's true, but Suadi conspiracies against Canada just don't have the cache conspiracy theorists demand.

[alfred russel]

You might want to re-read that article you linked to.  It says nothing about "SA's attempt to cripple both the Iranian and the US oil industry." Probably a good thing, as the whole "it's not the Chinese drop in demand that's lowering oil prices, but a weird conspiracy to do the impossible" shtick is old and tired.

SA would probably not try to 'cripple" a US oil industry that's making record field production of oil.  They'd wait until the US oil industry wasn't at its strongest.

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.

[Razgovory]

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.

[alfred russel]

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.

a) I think that is right.

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.

[Razgovory]

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.

a) I think that is right.

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.

The capital intensive part is on the front end, building the stuff, buying the equipment, drilling the holes etc.  After that it costs much less.  If the first company that built it goes bankrupt another one will buy the stuff and sit on it.

[grumbler]

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.

[alfred russel]

The capital intensive part is on the front end, building the stuff, buying the equipment, drilling the holes etc.  After that it costs much less.  If the first company that built it goes bankrupt another one will buy the stuff and sit on it.

The theory isn't to stop any exploitation of fields already in production--both today and in the indefinite future--but to prevent future development of new fields where that front end investment hasn't been made.

[alfred russel]

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.

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.

[Razgovory]

The capital intensive part is on the front end, building the stuff, buying the equipment, drilling the holes etc.  After that it costs much less.  If the first company that built it goes bankrupt another one will buy the stuff and sit on it.

The theory isn't to stop any exploitation of fields already in production--both today and in the indefinite future--but to prevent future development of new fields where that front end investment hasn't been made.

I don't think that has happened in history.  The low gas prices in the 1980's didn't prevent new fields to open up in the 2000's.