• Geopolitical machinations in the oil market benefiting Americans at the pump.
By Dave Gahary —
With its sanctions regime failing against Russia, is Washington now trying to wage economic war on the Russian government by pressuring its allies in the Middle East to keep crude oil prices at the lowest levels seen in years?
As the price of oil continues its four-month swoon to almost $80 a barrel from $104 at the start of the summer, news out of New York last week that Saudi Arabia will not interfere with the price decline is good news for American motorists, but bad news for Russia, whose economy is dependent upon crude priced at $100 per barrel or more.
The Saudi move, which is counter to the interests of the Organization of the Petroleum Exporting Countries (OPEC), may be in response to pressure applied to the Mideast kingdom by Washington, to assist their failing sanctions regime against the Russian Federation. Russia relies heavily on oil revenues to fill government coffers.
Pro-Russian unrest in Ukraine this year precipitated U.S. and European Union (EU) economic sanctions against Russia and Ukraine, the latter responding with their own sanctions, including a total ban on food imports from the U.S., EU, Canada, Australia and Norway.
On Sunday, October 12, 2014, the vice president of Russian oil giant Rosneft, which is majority-owned by the Government of Russia, took a swipe at the Kingdom of Saudi Arabia’s move and suggested the U.S. was pulling their strings and that the American- and Israeli-created “terrorist” group, Islamic State, aka ISIS, is also playing a part.
“Prices can be manipulative,” Mikhail Leontyev said. “First of all, Saudi Arabia has begun making big discounts on oil. This is political manipulation, and Saudi Arabia is being manipulated, which could end badly. The second factor is the stolen [Islamic State] oil, which reaches the market through Turkey and Israel with a triple discount. It is not much, but it is stolen, so it is cheap.”
Crude oil tumbled nearly 5% on Tuesday, October 14, 2014, “its biggest drop in more than two years,” to $81.84 a barrel, and its “biggest percentage drop since November 2012 and the lowest settlement since June 28, 2012.” Petroleum analysts blame anemic demand from Europe and China and the booming U.S. shale oil industry, which has “pushed [oil] production to its highest level since the 1980s.” Global markets are figuratively swimming in a glut of crude, as “Libya’s production has recovered strongly,” and “Iraq’s oilfields have remained insulated from the violence in the north.” Shale is sedimentary rock that contains shale oil which has become an increasingly important source of oil in the U.S.
Helping to accelerate the slide in oil prices, on Tuesday, the International Energy Agency (IEA) cut its oil demand forecast, saying that in 2015 it “will grow far slower than previously forecast,” and that OPEC “may no longer be willing or able to adjust production as the market has been transformed by the U.S. shale oil revolution,” when it meets next on November 27 “to discuss output policies and whether to act to stem the price slide.” The IEA was created after U.S. support for the Zionist state of Israel during the 1973 Yom Kippur war brought on the Arab oil embargo and subsequent crisis.
“At current production levels,” said the IEA in its monthly report, “supply growth will outstrip demand growth and this is adding to the current negative sentiment in the market.”
How far the oil decline will go is anyone’s guess, but “some think oil prices don’t have much further to fall, because the price is too close to the cost of drilling.”
“If we get to the price point where it’s not profitable to operate marginal wells, that’s going to provide a bit of a price floor in terms of the oil market,” said an economist and portfolio manager interviewed by The Wall Street Journal.
Dave Gahary, a former submariner in the U.S. Navy, is the host of AFP’s ‘Underground Interview’ series.