Today China is undoubtedly the first item on the agenda of governmental and OPEC meetings. U.S. shale and tight oil production had been accelerating, with the traditional “call on OPEC” being replaced by the “call on shale” in setting prices.
All the damage inflicted upon Saudi Arabia has the world looking back towards Riyadh, especially after oil prices crashed on “Meltdown Monday“.
But those sentiments have changed with the latest unexpected price drop, growing concern about the demand outlook in China and persistent oversupply.
While the largest oil majors are capable of surviving on the strength of their worldwide assets, you can expect the wave of bankruptcies to start increasing by the end of 2015. They explained this policy shift by stating that they wanted to defend their market share and didn’t want customers buying oil from other sources.
But the comments signal how big producers see the market playing out and that OPEC’s strategy championed by Saudi Arabia is not a short-term one, but rather a plan that needs time to work and they are willing to wait.
What had begun as a calculated move by OPEC producers to protect market share has morphed into a crushing decline in crude oil prices. On the contrary, with so numerous world’s most productive oil regions gripped by political chaos, any sign of stabilization can quickly boost supplies.
Recently, however, the Saudis changed their export strategy and announced that they would continue to produce high volumes of oil regardless of how low prices fell.
The Saudi government remains inscrutable on the subject, but that has not stopped the speculators.
Iran is much more dependant on high oil prices than Saudi Arabia for its income.
“Market” forces include many components. For Libya it is more than $200 a barrel, higher than the oil price has ever been.
OPEC’s own forecasts show the group initially over estimated the speed at which low prices would curb non-OPEC supply.
The second target is the one getting all the media attention. “In the long-run, what you’re going to see is lower non-OPEC supply, higher demand and greater market share for them”.
It seems like the best option, at least in the short term, to lay off some of the higher-paid workers to save company money…it’s not. Absolutely not. Most significantly, nearly every oil company across the globe has slashed their exploration budgets for this year and into the foreseeable future. OPEC will need to reassess its strategy shortly.
In the meantime, U.S. drivers, homeowners and businesses should take advantage of the situation. It also has set up funds to invest in Malaysia and China. This is increasingly attractive as more Middle Eastern investors seek to make their investment Islamically compliant. The market collapses in Shanghai and Sichuan have ushered in a global market meltdown. Two of them, actually, and both Chinese. Any downturn in China will have implications for this relationship.
However, not all of its members are content with this policy. The global crash in 2007 and 2008 provided a salutary lesson that no part of the world could be immune from the consequences of a global recession. Oil will become more like other commodities, with volatile prices.”Yergin was correct that reduced investment would eventually erode spare capacity and the era of surplus would end, but even he might have been surprised that it would take nearly 20 years“.