That Word Again: Existential -- May The Fourth Be With You -- 2019

Updates

May 6, 2019: US deploying Lincoln carrier group to Mideast in response to "troubling" Iran actions. No link. Story everywhere.

May 6, 2019: Iran warns OPEC collapse is likely.  

Original Post 

Lots of dots to connect. I assume everything I'm "linking" as background has been posted earlier somewhere on the blog.

First this one from CNBC, April 10, 2019: OPEC's oil production plunges to a four-year low in March as Saudis slash output. It is being reported that Saudi took another 324,000 bopd off the market, bringing Saudi's output to just under 9.8 million bopd. That's total production; they have a huge domestic crude oil requirement.

Second, this graph. This is one of my favorite graphs; I have posted it many times.

Look at that graph closely; pay attention to oil production. It appears Saudi crude oil production in 2013 was about 12 million boepd; and, about the same, 12 million boepd in 2014. Maybe only 11 million boepd but clearly well above 10 million boepd but about the very same that it was in 2008. (Saudi Arabia produces very little natural gas; Saudi "boe" comes close to Saudi "bo." See graph above.)

Now, five years later, 2019, and production has dropped below 10 million bopd and Brent oil, off which Saudi prices it's oil, is barely $71.

Third, back on November 15, 2015, in an update to a post dated November 11, 2015 -- three and a half years ago -- I suggested that one could argue that Saudi Arabia has an existential problem:

November 17, 2015: I think this article is a bit of hyperbole, written to attract "clicks" or "eyeballs." But one can argue the slump in the price of oil is an existential problem for Saudi Arabia. Investopedia is reporting that Saudi Arabia could run out of cash in as little as five years if excessive spending is not curbed.

Hold that thought.

Tonight, a contributor over at oilprice.com has this headline: OPEC is facing an existential crisis.

Iran is certainly facing an existential crisis.

Obviously, we don't mean that "Iran is going to go away." We mean that the present government is at risk of facing the same situation that Venezuela's Maduro is facing, but for very different reasons.

Here is the lede of the op-ed:

There is a new threat looming though as OPEC+ prepares to meet at its June 25-26th (2019) Ministerial Meeting in Vienna. The internal cohesion of OPEC is being called into question at present, as several major member countries are facing not only external sanctions but threats of a total internal implosion of their respective regimes.

The removal of U.S. waivers for leading oil importers of Iranian oil and gas is putting the Tehran regime under severe pressure. While Trump’s target of reducing Iranian production to zero is unrealistic, the impact of the sanctions is undeniable.

No new oil contracts have been reported between Iran and its main clients, China and India, since the sanctions. It seems that the fear of indirect sanctions by the U.S. is already having its desired result, Iran’s hydrocarbon exports have been hit hard and seem to have no response. Reports about Iran having trouble to pay not only its own bills, but also its proxies in Lebanon, Syria and Iraq, also show that the regime is struggling.

For the record, I have said many times over many years that OPEC is no longer relevant. Saudi Arabia is OPEC and vice versa, or maybe OPEC is now Russia and Saudi Arabia, but certainly, OPEC as a relevant entity disappeared years ago.

But OPEC is not going to go away. Some members will come and go. Indonesia has left OPEC on more than one occasion. It last left two years ago; I don't know if it has renewed its membership, but obviously it is welcome to attend OPEC meetings.

Iran will try to outlast Trump -- two years is all they need. Once President Biden takes the oath of office, the US policy towards Iran will return to what it was under Obama-Hillary-Valerie.

But, enough about Iran.

I think the Saudi Arabia story is more interesting. It certainly appears that Saudi's situation has improved since the Investopedia article of 2015 and my comments regarding Saudi's existential issue at that time. But a few facts with regard to Saudi Arabia:

• Saudi's crude oil production is not increasing
• the price of oil remains way too low for Saudi's needs
• Saudi's own requirement for crude oil is increasing, thus leaving less oil to sell
• for Saudi to execute Prince Salman's plan, a huge amount of capital will be needed

It will be an interesting movie to watch.

The first trailer will likely be OPEC's June 25-26th (2019) Ministerial Meeting in Vienna.