Thursday, December 25, 2014

Lower Oil Prices: OPEC and Saudi Fear of U.S. Shale

In early October, Saudi Arabia’s representative to OPEC surprised attendees at a New York seminar by revealing his government was content to let global energy prices slide.
Nasser al-Dossary ’s message broke from decades of Saudi orthodoxy that sought to keep prices high by limiting global oil production, said people familiar with the session. That set the stage for Saudi Arabia’s oil mandarins to send crude prices tumbling late last month after persuading other members of the Organization of the Petroleum Exporting Countries to keep production steady.
Hard-hit countries like Iran, Russia and Venezuela suspected the move was a coordinated effort between the oil kingdom and its longtime ally, the U.S., to weaken their foes’ economies and geopolitical standing.
But the story of Saudi Arabia’s new oil strategy, pieced together through interviews with senior Middle Eastern, American and European officials, isn’t one of an old alliance. It is a story of a budding rivalry, driven by what Saudi Arabia views as a threat posed by American energy firms, these officials said.

CLICK HERE: OPEC’s Dilemma

Shale-oil production in places like Texas and North Dakota has boosted U.S. output, displacing exports to the U.S. from OPEC members and adding to global oversupply.
Mr. Dossary’s October message signaled a direct challenge to North American energy firms that the Arab monarchy believes have fueled a supply glut by using new shale-oil technologies, said the people familiar with the session.
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Saudi officials became convinced they couldn’t bolster prices alone amid the new-crude flood. They also concluded many other OPEC members would balk at meaningful cuts, as would big non-OPEC producers like Russia and Mexico. If Riyadh cut production alone, Saudi officials feared, other producers would swoop in and steal market share.
Saudi oil minister Ali al-Naimi tested that conclusion just 48 hours before the Nov. 27 OPEC decision, meeting in Vienna with oil heads of several big producer nations to suggest a coordinated output cut. As he suspected going in, he couldn’t get an agreement, said people familiar with the meeting. The option left: Let prices slide to test how long, and at what levels, American shale producers can keep pumping.
Read the rest of the story HERE and view a related video below:



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