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Tuesday, April 7, 2015

How Much Longer Can OPEC Hold Out? -- April 7, 2015

Updates

Later, 10:29 p.m. CT: I wrote the following earlier this evening but put it in draft status; I didn't really want to post it. But then a bit later, Reuters/Rigzone had this article: Saudi's Naimi Says Ready To Help Improve Oil Prices, But Not Alone.
Saudi Arabia's oil minister Ali al-Naimi said on Tuesday that the kingdom stood ready to "improve" prices but only if other producers outside of OPEC joined the effort.
Naimi said Saudi Arabia had pumped around 10.3 million barrels per day (bpd) in March, marking an increase from previous months. He did not say why output had risen.
Naimi also said he expected oil prices that have languished near six-year lows to improve in the near future. Oil prices extended gains late on Tuesday as traders took Naimi's comments as sign he may be open to renewed talks with producers like Russia and Mexico over curbing production in order to revive prices.
U.S. crude rose 3.5 percent to close at $53.98 a barrel, near it's highest this year.
"The kingdom is still ready to help bring back stability to the market and improve prices in a reasonable and suitable manner, but with the participation of the main producing and exporting countries and based on clear principles and high transparency, so the kingdom or the Gulf countries or OPEC countries do not shoulder that alone," he said at a Saudi economics conference.
The Organization of the Petroleum Exporting Countries (OPEC) agreed to maintain production at its meeting last November, despite pressure to curb output and stabilize sliding prices, after discussions with Russia and Mexico ended without action.
It doesn't take a rocket scientist to read between the lines. It's getting expensive to fight ISIS and subsidize the Palestinians at the same time. And then there's Iran to worry about.

Original Post
 
For the archives: how much longer can OPEC hold out?

I'm posting the link just for the archives. There is way too much to say.

I'm still trying to figure out Saudi Arabia's reasoning: is it better to sell 1,000 bbls of oil for $100 or 2,000 bbls of oil for $50? The profits from 1,000 bbls at $100 is much greater than the profit from 2,000 bbls of oil for $50.

Remember: it's all about margins. Whether Saudi sells their oil for $100 or $50, the cost of production remains the same. If their production costs are $10/bbl, the margin for $50-oil is $40/bbl; at $100-oil, it's $90 (more than double the $40/bbl margin). 1,000 x 90 = $90,000; 2,000 x 40 = $80,000.

In addition to margins, it costs less to ship 1,000 bbls than 2,000 bbls.

In addition to margins and transportation costs, Saudi would be saving 1,000 bbls of its national resource at $100-oil in this example.

Just idle chatter. Not very sophisticated. See disclaimer and purpose of the blog.

2 comments:

  1. Greetings, Mr. Oksol.
    Do you know if it has been determined that the stabilization process, now mandatory for CBR for Bakken crude, qualifies it as 'refined' and therefore exportable?
    I am reading virtually no data on this topic.

    ReplyDelete
    Replies
    1. I haven't seen a thing in ages on this one; it seems to have died a quiet death.

      Delete

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