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Author Topic: The oil market: what's up?
Fenring
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Does anyone here have some real information on how the oil price war of late began, and more importantly, who (if anyone) is trying to sabotage whom?

Right now I'm hearing that the Saudis are hurting for money, Canadian oil is hurting too, and I'm not 100% sure how American interests lie. If the majority of Western oil production and sales are hurting then who is behind the price dip? Originally I suspected it was an American/Saudi scheme to hurt Russia but now I'm not so sure anymore.

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Rafi
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Began with technology allowing the US to extract oil reserves previously to expensive or difficult to reach - fracking mostly. With the US getting cheap oil, priced declined. OPEC could not allow the US to control the oil market so they continue to dump oil onto the market until it becomes too cheap for even the US to sustain its operations. So both the US and OPEC are responsible for the price dip. Now it's time to see who can outlast who.
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Fenring
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So you're saying that OPEC engaged in a price war to undercut fracking production and run them out of business? This would make Saudi Arabia and the U.S. opponents, then.

I find that notion somewhat strange since I was under the impression that the Saudis and the U.S. otherwise have a tidy cooperative relationship.

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Rafi
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They definitely do have that relationship. But Saudi's got one source of income, they gotta protect it. They won't run US oil out of business, just keep it controlled.

If anyone thinks Saudi is a friend of the US, they've really misunderstood the Middle East and jihad.

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msquared
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I hate to say it but Rafi is, I think, basically right. The Saudi's cost of production is much lower than ours. So while low oil prices hurt them, it drives our producers out of business. I think a lot of our fracking wells were financed based on a certain dollar amount of production, and low prices make those numbers very hard to reach.

msquared

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AI Wessex
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I don't think our oil production systems will disappear, but they will probably reduce their production. The problem is that there simply is too much oil in the world for the market to absorb. I'm also not convinced that we need to be so committed to oil given other options that are developing along with increased efficiencies. If the US can develop those other sources and continue to increase efficiencies it won't be a matter of who will be the last man standing in a pool of oil, but who will have the better systems and prosper from them.
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Fenring
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I'll keep Rafi's interpretation in mind as I observe events in the near future. I completely understand about cooperative competition and about an 'ally' also being an opponent at the same time depending on what's happening. I think this was true in various ways during the Cold War as well, despite public rhetoric to the contrary.
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Mynnion
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I hate to say keep the prices low but Saudi oil production is much cleaner than tar sands. I am still hoping that oil for fuel will be obsolete in another 10-15 years with the promise of fusion right around the corner.
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Pete at Home
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Double take as Rafi has offered an astute analysis here.
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Greg Davidson
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I agree with Rafi on this.

And it is also worth noting that an additional (but smaller) factor is that demand has also been depressed by a number of conservation and efficiency measures, as well as the growth of domestic alternative energy sources. All part of an "all of the above" energy strategy that was pursued in part through actions of the federal government, including through funding provided in the 2009 stimulus package.

The good news is that the efficiencies and alternative energy approaches are above-and-beyond the current price wars with Saudi Arabia and are a net good for the US going forward.

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jasonr
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quote:
Originally posted by Mynnion:
I hate to say keep the prices low but Saudi oil production is much cleaner than tar sands. I am still hoping that oil for fuel will be obsolete in another 10-15 years with the promise of fusion right around the corner.

Keep hoping. There is no promise of commercially viable and practical fusion in 10-15 years by anybody. I don't think even mavericks like General Fusion are promising commercial reactors in that time frame. I think at ITER their time frame is somewhere are 2080.... I wish that last part was a joke [Frown]

I did read somewhere recently about an oil analyst calling for 130$ oil in the near future. I suppose there's always chicken bones...

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msquared
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I was just wondering how much fracking is going on in other parts of the world. Is this just a tech being used in the US? How much more oil, world wide, could be extracted if fracking was used in other parts of the world?

Al, I did not mean to imply that the wells would go away, but they would be shut down until the price of oil went back up and made them economical to run again.

msquared

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Rafi
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The US, Canada, China and Argentina are the only countries with commercial fracking operations. Most others are still experimental or too regulated to make it work or don't have the shake reserves needed.
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AI Wessex
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That will change. Russia in particular is both for and against fracking. They're concern is more about how other countries that develop fracking policies will reduce their dependence on Russian oil. They're for it because they also can produce more oil. They are waging an odd fight to restrict global fracking to help shift the balance more in their favor.

Right now everything is confused by the relative oversupply of oil on the market. Until demand comes into better balance with supply it's hard to predict how much any country will invest in the technology.

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Pyrtolin
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quote:
Originally posted by Mynnion:
I hate to say keep the prices low but Saudi oil production is much cleaner than tar sands. I am still hoping that oil for fuel will be obsolete in another 10-15 years with the promise of fusion right around the corner.

This is the bigger fear of the oil producers and why they keep the prices low. When the price is high investment in alternatives increases without needing public funding to push it along. So long as the price is kept low, progress on replacing it is undercut.
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jasonr
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quote:
This is the bigger fear of the oil producers and why they keep the prices low. When the price is high investment in alternatives increases without needing public funding to push it along. So long as the price is kept low, progress on replacing it is undercut.
I really really doubt that Saudi Arabia's price war is motivated by a fear of alternative energies. Alternative energy hasn't been economically viable without massive government subsidy even when oil was at $130.
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