Friday, June 15, 2012

OPEC Leaves Production Unchanged

This story is a bit old, by a day or so.

It is my worldview that the current price of oil is about $10 - $20 less than what Saudi Arabia would like (whether it's WTI or Brent).

So, let's take that as the starting point.

If prices are $10 to $20 lower than what the Saudis would like, why would they not advocate for decreased production? Some possible answers:
  • their real target is Iran
  • they are concerned about global recession driven by high oil prices; they are huge investors, also
  • there is simply not enough new data for them to change course -- it was just easier to do "nothing" at this point in time, than to do "something"
  • they agree with Boone Pickens: the supply/demand delta is tighter than folks realize
  • the supply/demand delta is tighter than folks realize, and could get tighter with Iranian sanctions
  • their target is alternative energy sources (renewables, Canada, unconventional/tight oil)
  • it's the eurozone: the eurozone is under great stress; it is in Saudi's investing interests to not make things worse for the EU
If this were a poll, I don't know which way I would vote, but this is how I would rack and stack those choices (top to bottom, most likely to least likely):
  • there is simply not enough new data for them to change course -- it was just easier to do "nothing" at this point in time, than to do "something"
  • it's the eurozone: the eurozone is under great stress; it is in Saudi's investing interests to not make things worse for the EU
  • their real target is Iran
  • they are concerned about global recession driven by high oil prices; they are huge investors, also
  • they agree with Boone Pickens: the supply/demand delta is tighter than folks realize
  • the supply/demand delta is tighter than folks realize, and could get tighter with Iranian sanctions
  • their target is alternative energy sources (renewables, Canada, unconventional/tight oil) 
Having said that, I think the 7th listed possibility is collateral damage. Whether that is Saudi's goal or not, they sure don't mind. 



8 comments:

  1. I think you are overanalyzing. The Saudi strategy is really very simple and transparent: maximize profit by controlling supply to achieve the highest price the market will bear without causing a recession in any given scenario . The trick is finding that price point as it is a moving target. Political volatility and fear strengthens this position.

    ReplyDelete
  2. Well, that would be the first time I've been "accused" of over-analyzing something.

    So, you would be "voting" for #4 above:

    They are concerned about global recession driven by high oil prices; they are huge investors, also.

    By the way, none of my suggestions were original. They were all presented by various talking heads on CNBC over the past few weeks with regard to Saudi's plans.

    ReplyDelete
  3. What makes you think SaudI is not advocating for decreased OPEC production ??

    ReplyDelete
    Replies
    1. Either Saudi is advocating decreased production and lost the argument, or Saudi is advocating no change and won the argument.

      This is not rocket science.

      Delete
  4. It is actually way more complicated than ricket science.
    Rocket science at it's core is explained by the laws of physics. Very predictable and understandable. No matter what the issue is, anyone trained in physics will come up with the "correct" answer. Price of oil is exactly the opposite and comes down to a whole collection of local politics each group
    (producer or consuming nation) with it's own
    conflicting factors. No outsider truly knows what goes on in Saudi it is a very closed government even in retrospect.

    ReplyDelete
    Replies
    1. I guess that's why I don't hear folks talking about ricket science at the local diner.

      "Anyone trained in physics will come up with the 'correct' answer." Flashed across my mind as I read that: the Mars probe that crashed due to a simple math error (feet vs meters).

      http://articles.latimes.com/1999/oct/01/news/mn-17288

      The second thing that crossed my mind was Inspector Clouseau of "Pink Panther" fame.

      The third thing that crossed my mind was the distinction between "training" and "education."

      Lots of things one could talk about, but need to move on. Thank you for taking time to comment.

      Delete
  5. Someone who ends up using the wrong units obviously isnt trained or educated in physics as inspector clouseau was not. Your arrived at yout "world view" using clouseau like methods.

    ReplyDelete
    Replies
    1. Actually I think Inspector Clouseau was much smarter.

      Again, none of the options/choices were original with me; they have all been suggested by folks much smarter than I.

      Delete

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