Sunday, October 12, 2014

Price War in Global Oil Patch ... That's Good News for Americans

For those old enough to remember, gasoline price wars used to break out occasionally in the 60's and early 70's.

Of course, that was before oil prices made a habit of spiking ever higher due to the pricing power of the OPEC cartel. In fact, prices quadrupled in the 70's, then kept right on climbing higher and higher, and basically haven't looked back since.

But now there's a break in the action and if the U.S. and its North American allies Canada and Mexico keep pumping, the rest of the world will have to come up with a new playbook. 

Saudi Arabia, the world's largest and the world's lowest cost oil producer as well, is currently putting lots of pressure on other global producers these days, and that suggests lower prices may lie ahead in the oil global patch. If so, that's good news. In fact, it would represent very good news for America and American consumers.

Saudis Make Aggressive Oil Push in Europe has the hopeful story:

"Days after slashing prices in Asia, Saudi Arabia is now making an aggressive push in the European oil market, traders say.
The kingdom is taking the unusual step of asking buyers to commit to maximum shipments if they want to get its crude.
“The Saudi push is not just in Asia. It’s a global phenomenon,” one oil trader said. “They are using very aggressive tactics” in Europe too, the trader added.
This month, state-owned Saudi Aramco stunned the rest of the Organization of the Petroleum Exporting Countries by slashing its November prices to defend its market share in Asia’s growing market. The move, setting a price war in the oil-production group, was combined with a boost in the kingdom’s output in September.
But Riyadh is also moving to protect its sales to Europe, a declining market where it is facing rivalry from returning Libyan production.
After cutting its November prices there, Saudi Aramco is also asking refiners to commit to full, fixed deliveries in talks to renew contracts for next year, the traders say. They say the Saudi oil company had previously offered a formula allowing flexibility of more or less 10% of contracted volumes, the most commonly used in the industry.
“They are threatening buyers” to discontinue sales if they don’t agree with the fixed deliveries, another trader said."
Summing Up
The market for oil is truly global.
And Saudi Arabia is both the world's biggest and lowest cost producer as well.
The laws of supply and demand are hard at work these days as the Saudis flex their economic energy 'muscles.'
Therefore, as we in North America produce more and more energy, and as the Saudis remain unwilling to cut back on their output, other producers with higher costs of production will definitely feel the heat.
Much lower prices at the pump probably lie ahead.
It's about time we headed in a downward direction with respect to global oil pricing.

And now we are.
That's my take.
Thanks. Bob.

No comments:

Post a Comment