Saudis, shale and the high costs of cheap oil
A little more than a year ago, Saudi Arabia, the effective leader of OPEC, the 13-country cartel that pumps about a third of the world’s oil, decided that enough was enough.
The global market was drowning in oil, thanks to the American shale-oil miracle, and the Saudis were losing market share. They went on the offensive.
Production cuts by the Organization of Petroleum Exporting Countries (OPEC) to keep the price up would be ruled out; the market would find its own level…
The Saudis’ damn-the-torpedoes strategy has triggered economic hell in Venezuela, Libya, Algeria and Nigeria, the OPEC countries whose economies live and die on energy exports.
The International Monetary Fund predicts that the Venezuelan economy will shrink by 10 per cent this year and an additional 6 per cent in 2016 – and the Greeks thought they had it bad. The bolivar – the Venezuelan currency – has become wallpaper. Inflation is running at several hundred per cent a year and could rise to 1,000 per cent or more. Yet Venezuela’s pleas for help are being ignored by the Saudis and their open-the-spigots allies within OPEC.
So much for OPEC’s all-for-one-and-one-for-all founding philosophy. This strife is internecine and could turn Venezuela into at best a bailout candidate, at worst a failed state, as if the world needs another.
…only the most courageous, or most ill-informed, market guru would predict a quick bounce back. That’s because U.S. shale-oil production is proving remarkably resilient even though the oil price has fallen by more than half since mid-2014. In September, U.S. oil production was 9.4 million barrels a day, down only 260,000 barrels since its April peak and still more than one million barrels higher than its early-2014 level…
And now there’s Venezuela’s parliamentary election December 6:
Venezuela’s Socialist Party Risks Unprecedented Defeat
Venezuela’s Socialists at risk in tense legislative vote
Meanwhile someone’s being seizing opportunities: