Oil's Collapse Is a Geopolitical Reset in Disguise

#1

Post by jseliger » Sun, May 03, 2020, 1:04 AM UTC

Oil's Collapse Is a Geopolitical Reset in Disguise
bloomberg.com

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#2

Post by voz_ » Sun, May 03, 2020, 1:52 AM UTC

Additional detail: The author was one of the architects for major pieces of the Iraq war, including the surge.

https://en.wikipedia.org/wiki/Meghan_O%27Sullivan

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#3

Post by irjustin » Sun, May 03, 2020, 2:07 AM UTC

I really appreciate this piece as there's a lot of the world of oil I don't understand.

One thing I don't understand is, why is it favorable for OPEC not to cut supply? Is it they want to crush all non OPEC based producers? Or are their buyers forced to buy at a particular price so they don't care if they keep producing?

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#4

Post by [deleted] » Sun, May 03, 2020, 2:08 AM UTC

[deleted]

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#5

Post by birdyrooster » Sun, May 03, 2020, 2:11 AM UTC

irjustin wrote: post #3

I really appreciate this piece as there's a lot of the world of oil I don't understand. One thing I don't understand is, why is it favorable for OPEC not to cut supply? Is it they want to crush all non OPEC based producers? Or are their buyers forced to buy at a particular price so they don't care if they keep producing?

I think they see this is their last chance to shake off the light crude people in the US.

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#6

Post by fspeech » Sun, May 03, 2020, 2:14 AM UTC

irjustin wrote: post #3

I really appreciate this piece as there's a lot of the world of oil I don't understand. One thing I don't understand is, why is it favorable for OPEC not to cut supply? Is it they want to crush all non OPEC based producers? Or are their buyers forced to buy at a particular price so they don't care if they keep producing?

Because individually it does not work. If you cut and oil price does not go up as much as your cut percentage wise you actually lose revenue. And your competitors who don't cut benefit from any price rise. It is not easy to maintain a price cartel.

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#7

Post by arthurcolle » Sun, May 03, 2020, 2:16 AM UTC

irjustin wrote: post #3

I really appreciate this piece as there's a lot of the world of oil I don't understand. One thing I don't understand is, why is it favorable for OPEC not to cut supply? Is it they want to crush all non OPEC based producers? Or are their buyers forced to buy at a particular price so they don't care if they keep producing?

From my understanding, over the last decade, shale has become a force to be reckoned with in North America (US, Canada). This is seen as a competitive threat to other global energy producers. Saudi Arabia and Russia both have sufficient cash reserves to be able to just dump a glut of crude oil on the market at "fair market value" and exist with the depressed prices and are ok with making no money to basically completely dominate the market once tons of highly levered US upstream and downstream oil producers die off with this ongoing period of non-existent demand.

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#8

Post by gonehome » Sun, May 03, 2020, 2:16 AM UTC

irjustin wrote: post #3

I really appreciate this piece as there's a lot of the world of oil I don't understand. One thing I don't understand is, why is it favorable for OPEC not to cut supply? Is it they want to crush all non OPEC based producers? Or are their buyers forced to buy at a particular price so they don't care if they keep producing?

They did want to cut supply, Russia refused to cooperate in the cut.

As a result they increased supply to fight back and hurt Russia’s export.

At least that was the story I read a few weeks ago when this went down.

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#9

Post by msla » Sun, May 03, 2020, 2:19 AM UTC

There's a current idea that the USSR collapsed due to oil shock:

https://thetyee.ca/News/2013/03/13/Soviet-Union-Oil/

The actual scientists say it's more complicated. As you should expect:

https://carnegieendowment.org/2017/03/29/formation-and-evolu...

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#10

Post by mbreese » Sun, May 03, 2020, 2:20 AM UTC

irjustin wrote: post #3

I really appreciate this piece as there's a lot of the world of oil I don't understand. One thing I don't understand is, why is it favorable for OPEC not to cut supply? Is it they want to crush all non OPEC based producers? Or are their buyers forced to buy at a particular price so they don't care if they keep producing?

ArsTechnica / Wired has a good article out about just that question. One reason that isn’t economic (and there are many economic factors a play here too) is that if you stop pumping oil, you can potentially damage the well. This would make it more difficult to reopen the well in the future when the prices improve. This also tends to affect smaller producers with fewer wells and thus more risk of one of them is damaged.

(This is related to why haven’t wells shut down in response to the drop in price, as opposed to simply producing less oil from existing wells.)

https://arstechnica.com/science/2020/05/heres-why-the-world-...