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Posts Tagged ‘oil prices’

OPEC Can’t Make High Oil Prices Go Away

Posted by M. C. on November 24, 2021

Massive injections of liquidity have caused a double side effect: rising malinvestment in nonproductive activities and now a large inflow of capital into so-called value areas: more money directed to relatively scarce assets. Energy has gone from a consensus underweight to a large overweight, exacerbating the price increase. The marginal barrel of oil has risen almost 60 percent in a year despite supply rising in tandem with demand.

https://mises.org/wire/opec-cant-make-high-oil-prices-go-away

Daniel Lacalle

High oil prices are a symptom of economic and monetary imbalances, not just a consequence of Organization of the Petroleum Exporting Countries (OPEC) decisions. Throughout history, we have seen how OPEC cuts have done little to elevate prices when diversification and technology added to rising efficiency.

Likewise, OPEC output increases do not necessarily mean lower prices, let alone reasonable ones. Increased OPEC output helps but does not solve price issues, even if they would probably like to.

The problem in the oil market has been created by years of massive capital misallocation and underinvestment in energy created by extremely loose monetary policies directed by governments that have penalized capital expenditure on fossil fuels for ideological reasons.

Misguided activism and political nudging in the middle of massive monetary injections have created massive bottlenecks and underinvestment that hinder both security of supply and a technically feasible competitive energy transition.

Massive injections of liquidity have caused a double side effect: rising malinvestment in nonproductive activities and now a large inflow of capital into so-called value areas: more money directed to relatively scarce assets. Energy has gone from a consensus underweight to a large overweight, exacerbating the price increase. The marginal barrel of oil has risen almost 60 percent in a year despite supply rising in tandem with demand.

According to JP Morgan, the required capital expenditure in energy required to meet demand is $600 billion for the period 2021–30. This “cumulative missing capex” is part of the problem.

The other important problem is artificial demand created by chains of stimulus plans. As I’ve explained before, adding enormous energy-intensive infrastructure plans to a reopening economy where some supply bottlenecks have been worsened generates the same effect on energy prices as a huge speculative bubble.

Political intervention has also created an important price impact on the marginal barrel of oil. Threatening to ban domestic development of energy resources in the United States or announcing the prohibition of fossil fuel investment, as has happened at some European summits makes the net present value of the long-term marginal barrel higher, not lower. Why? Because those threats are not made with sound technical analysis and robust supply and demand estimates, but with political agendas. Any serious engineer that understands the importance of security and supply and technology development understands that a successful energy transition to a greener economy requires solid and realistic targets and policies that will avoid an energy crisis. Those have been forgotten.

OPEC is benefitting from high oil prices but not as much as one would think. The OPEC Reference Basket (ORB) is $68.33 per barrel year-to-date, a 68.4 percent increase over the same period last year, but still massively below the elevated levels prior to the 2008 financial crisis. Furthermore, OPEC and non-OPEC supply have risen in tandem with demand. Global liquids production in October increased by 1.74 million barrels per day compared with the previous month, to an average of 97.56 million barrels per day. The US liquids production growth forecast for 2021 has been revised up by 19,000 barrels per day and is expected to be 17.57 million barrels per day in 2021. Imagine where oil and gas prices would be if the political threats to ban or severely penalize domestic production had been enforced.

Let us not forget that OPEC has also revised down the estimates of global oil demand to 96.4 million barrels a day in 2021. Supply remains ample and the United States administration should also see that Russia and the US are expected to be the main drivers of next year’s supply growth. Without Russia and the US, production prices would soar no matter what OPEC partners or Saudi Arabia alone do.

We are suffering from the combination of misguided energy policies, excessive money creation and ill-timed giant construction plans. OPEC and its partner Russia may alleviate this, but not change it dramatically. Furthermore, as time passes and underinvestment becomes more severe, OPEC’s ability to curb prices will weaken. We cannot forget that OPEC and Russia account for less than half of total world supply. They matter, but putting two million more barrels a day on the market will not solve the long-term price problem.

Energy prices will decline with more technology, investment, and diversification, not empty political threats. Author:

Daniel Lacalle

Daniel Lacalle, PhD, economist and fund manager, is the author of the bestselling books Freedom or Equality (2020),Escape from the Central Bank Trap (2017), The Energy World Is Flat (2015), and Life in the Financial Markets (2014).

He is a professor of global economy at IE Business School in Madrid.

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US Pulling Patriot Missiles, Warplanes Out of Saudi Arabia Amid Dispute – News From Antiwar.com

Posted by M. C. on May 8, 2020

Don’t worry. The missiles and planes will be back before you know it..

We can’t inconvenience the genocidal, terrorist supporting, head chopping, perpetrators of 9/11 for long.

https://news.antiwar.com/2020/05/07/us-pulling-patriot-missiles-warplanes-out-of-saudi-arabia-amid-dispute/

US wants Saudi oil production cut to ensure stable prices

The Trump Administration has been annoyed at Saudi Arabia’s inability to stabilize oil prices at a level high enough to ensure US producers a profit, and in a move that appears to be retaliation based on those tensions, the US is starting to pull military assets out of Saudi Arabia.

Officials announced on Thursday that the US will be withdrawing two Patriot missile batteries, along with a number of warplanes from the Saudi desert, along with other air defenses. The assets were placed in the area in recent months to “counter Iran.”

The US buildup in Saudi Arabia began after a Yemeni missile hit oil-producing regions. Saudis blamed Iran, and the US sent forces there to “deter” them. US-Iran tensions over Iraq ultimately led to more deployments into the area.

Putting troops there appears to have given the US the leverage to pull troops out of there, and with Saudi efforts to try to get oil prices back up largely unsuccessful, the US appears to have decided that this will coax them into action.

As a security matter, this is unlikely to matter, as there was no indication that Iran or anyone else was really liable to attack the Saudis. This should also mean no real added security premium on the price of oil, though since the US goal is a price increase, any increase from the pullout would be welcomed.

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Saudi Attacks May Nudge US to ‘Go to War’ With Iran and Seize its Oil, Megaupload’s Kim Dotcom Warns – Sputnik International

Posted by M. C. on September 16, 2019

McCain, Bolton and the third stooge Pompeo.

https://sputniknews.com/middleeast/201909151076808289-saudi-attacks-may-nudge-us-to-go-to-war-with-iran-and-seize-its-oil-megauploads-kim-dotcom-warns/

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The Trump administration, which has long demonised Iran and been trying to choke off its oil exports, has blamed the latest attacks on Saudi oil processing facilities on the Islamic Republic, despite Yemeni Houthi rebels claiming responsibility. Iran rejects the accusations.

The United States will emerge as the “biggest beneficiary” of Saturday’s drone attacks that targeted a Saudi Aramco processing facility and oilfield in eastern Saudi Arabia, internet tycoon Kim Dotcom has suggested.

The attacks are expected to trigger a jump in oil prices when markets reopen on Monday, given that Saudi Arabia has halted half its oil production – around five million barrels of crude per day, or around 5 percent of the world’s daily output.

The millionaire Megaupload founder, who is fighting extradition to the US on charges of fraud and online piracy, predicted the attacks would embolden the US – the largest oil producer – to “blame Iran, go to war, [and] take control of Iran’s oil which pays for the war.”

This scenario has partly come to pass already: although Yemen’s Houthi rebels acknowledged they were behind the strikes, US Secretary of State Mike Pompeo claimed there was “no evidence”  to believe the attacks came from Yemen and blamed Iran instead….

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