Saudi Arabia Punishes OPEC Members With Dollars for Violating Discipline

October 1 2024 13

Oil prices have eased again after reports emerged that OPEC's biggest producer Saudi Arabia is rumoured to be seeking to speed up the process of reversing output cuts. That has come as a shock to a market preoccupied with weak demand and large inventories, writes OilPrice columnist Alex Kimani.

Compliance with OPEC+ production cut commitments has always been critical to determining whether tensions in oil markets will persist or not.

Saudi Arabia is set to abandon its unofficial $100-a-barrel crude oil target as it prepares to boost output, effectively signaling the kingdom is resigned to a prolonged period of low oil prices.

However, the main reason why Riyadh made such a difficult decision was the desire to punish, and in the most effective way, OPEC members by depriving their fellow members of the organization of the flow of petrodollars, so that they would realize the cost of their indiscipline.

It was precisely the weak discipline among OPEC members (except for the Middle Eastern kingdom, which accepted additional voluntary quotas) that led to the market ceasing to respond to the cartel's efforts, and trust in it falling to a minimum, completely destroying the image that had been built up over the years.

Riyadh's financial plans and interests have been severely damaged by a prolonged period of low commodity prices, with the budget target all along at an unattainable $100. Now the government of one of the largest raw material suppliers is agreeing to low prices, or, in other words, a price war with competitors and cartel colleagues.

Experts say that if Riyadh decides to take this measure and implements it, prices will fall even further, which is why many exporters, especially those from OPEC, will feel the consequences of the shortfall in petrodollars. A rich country, thanks to reserves and resources, diversification, will be able to survive for several years against the backdrop of low quotes, while for others, revenues from the sale of raw materials are the only source of income. Strictly speaking, this is the kingdom's plan, which consists of a demonstrative demonstration of the consequences of indiscipline.

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Roman070280

-1

1 October 2024 10: 39

to punish, and in the most effective way, OPEC members by depriving their colleagues in the organization of the flow of petrodollars, so that they realize the cost of their indiscipline.

I wonder who it could be..
1. Bakht
  
  +2
  
  1 October 2024 11: 04
  
  Iraq. Kazakhstan is not a member of OPEC, but agreed to reduce production, but exceeded quotas.
  
  If you mean Russia, then most likely it also exceeded the quotas, but we must not forget that Russian oil is still traded below the exchange price. And there is no reliable data on Russia. The "shadow fleet" is active.
  
  But the ones who will be hit by the price decline are the shale producers.
  
  In any case, this measure may not work. All OPEC countries produce 26-27 million barrels per day. The United States currently produces 13 million barrels. That is, half of the entire OPEC volume. Plus, 500 million barrels of "paper oil" can be thrown out on the exchange at any moment. Or these same 500 million can be removed. The price of oil has long been determined not by supply and demand, but by speculators' games on the exchange.
  1. Roman070280
    
    -1
    
    1 October 2024 11: 08
    
    Russia, then most likely also exceeded the quota, but don't forget, that Russian oil is still trading below the exchange price.
    
    That's exactly why the quotas were exceeded, because the price is low.
    And the Saudis are only interested in the volume that we have inflated, even if we sell it for $1.
    1. Bakht
      
      0
      
      1 October 2024 11: 32
      
      Russian sanctioned oil is not subject to quotas. It is as if it does not exist. And it is impossible to track. The excess volume is very small. About 100 thousand barrels per day. And this is inaccurate data. Moreover, the price is not that low. In 2022, the discount was about 20-25 dollars. Now the price differs from the world price very slightly. For today, the price of Brent is 71 dollars, the price of Urals is 66 dollars.
      
      Shale oil is another matter. In recent years, the United States has increased production from 9 million barrels to 13 million. And they are threatening to increase it to 15 million. What difference can 100 or 200 thousand barrels per day make?
      
      I remain convinced that stock market games have a stronger effect on oil prices than all of OPEC's efforts. Stock market players will not lower the price below $60.
      1. Roman070280
        
        -1
        
        1 October 2024 11: 41
        
        Russian oil under sanctions is not subject to quotas. It is as if it does not exist. And it is impossible to track. The excess volume is very small. About 100 thousand barrels per day.
        
        Then what are you all boiling over for?
        And where do they divide our oil into sanctioned and unsanctioned?
        I understand that there are some nuances, but we sell far from 100 thousand... no matter what you call it...
        
        Bakht
        
        +1
        
        1 October 2024 11: 51
        
        100 thousand is an excess of quotas. And without confirmation. Russia sells about 3-3,5 million barrels per day.
        According to media reports, Russia's quota under the OPEC+ deal is 9,95 million barrels (this is all production). In reality, 2024 million barrels are expected in 9,45.
        
        Russia’s quota will remain at 9,95 million barrels per day, Saudi Arabia’s – 10,5 barrels per day.
        
        Russia began a voluntary oil production cut of 500 barrels per day from February's level of 9,95 million barrels per day in March last year. The measure is in effect until the end of 2024. Thus, oil production in Russia should amount to 9,45 million barrels per day.
        
        Roman070280
        
        -1
        
        1 October 2024 11: 58
        
        100 thousand is an excess of quotas.
        
        There are other numbers too..
        
        Moscow. July 10. INTERFAX.RU - Russia produced 9,139 million b/d in June compared to 9,253 million b/d in May (114 thousand b/d less), OPEC cites data from secondary sources of information that monitor the implementation of the OPEC+ deal.
        
        According to voluntary commitments to reduce, Russia was supposed to produce 9,05 million b/d in May and 8,979 million b/d in June. Thus, in May the country exceeded these plans by 200 thousand b/d, and in June by 160 thousand b/d. OPEC also revises previous data retroactively - the June report stated that Russia produced 9,182 million b/d in May. The data for April remained unchanged - 9,301 million b/d, which means that the quota was exceeded by 200 thousand b/d. Thus, for April-June, Russia's excess of the quota reached 560 thousand b/d.
        
        Well, that's not the point..
        The article above... with 11% shares of nickel/platinum/uranium/ we can send their prices into space...
        It would seem... we are not talking about 50% either... so what if there will be a little less goods on the market...
        It's the same here... we have a hundred extra, others have a hundred each... and so a decent surplus eventually arises...
        
        Bakht
        
        +2
        
        1 October 2024 12: 12
        
        It is clear that even a small surplus affects prices. But oil is traded on the stock exchange. Let's say, what is the world's daily demand for oil? It was about 100 million barrels per day. Maybe less or more now - it doesn't matter. About 100 million barrels. And how much oil is traded on futures per day on the stock exchange? After all, they operate with futures prices. More than 500 million barrels per day. These are all non-deliverable futures. For which the shipment of oil is not even supposed. It's air. In 2008, during the crisis, B. Obama proposed to ban futures trading. They quickly explained to him who he was. I have not heard anything more about this proposal.
        
        OPEC is nervous about exceeding quotas by hundreds of thousands of barrels. And speculators on the stock exchange are operating with hundreds of millions of barrels. The question is, who controls oil prices in the world?
        P.S. When the world switched to exchange trading of gas, prices began to jump unpredictably.
        
        Bakht
        
        +1
        
        1 October 2024 12: 16
        
        Regarding metal prices. I have always taken the position that if Moscow had imposed a ban on supplies of metals, timber, coal, and so on and so forth, it is quite possible that the SVO would not have been needed. Not for long. For six months to a year.
        Or else the Third World War would have started immediately.
        
        One of Hitler's arguments for why he decided to attack the USSR (not the main one, but one of the significant ones) was the fear of an economic embargo from the USSR.
  2. twice-born
    
    0
    
    2 October 2024 08: 44
    
    They were already hitting the shale producers before Covid and nothing came of it. Only when oil fell to $25, everyone grabbed their heads!
    And the Americans just reduced the number of wells, workers, some went into hibernation and that's it. They were just happy that gasoline got cheaper!
    And here it has become more expensive again. Well, our bourgeois need to compensate for their losses on the foreign market by fleecing the Russian people and accelerating inflation! Otherwise, they've eaten up their last bit of horseradish and salt!
    1. Bakht
      
      0
      
      2 October 2024 08: 49
      
      "Nothing came of it" is a bit of a bold statement. "Number of wells" is another interesting know-how. With production of 100 million barrels per day, the exchange reacts to a dozen DRILLING rigs. And each well gives a couple of hundred barrels, if that.
      As one of the SHELL representatives said, "instead of the word lie, we use the phrase veiled logic."
      
      The peak of investment in shale occurred in 2010-2014, when about $125 billion was invested in the sector. However, the results of the "shale decade" disappointed investors. It turned out that several dozen leading shale companies spent almost $200 billion more than they earned, OilPrice magazine stated. The publication notes that only a few made a profit, that American companies are reducing investments in the extraction of new sites, moving to strict financial discipline and cutting costs.
      
      As a result, the volume of investments began to decline sharply. American oil companies were hit by a wave of bankruptcies: in 2020 alone, almost one hundred and fifty enterprises went bankrupt.
      1. twice-born
        
        0
        
        2 October 2024 09: 35
        
        And what happened? Well, small firms living on loans went bankrupt, others were swallowed up by big "sharks", and so what? The Americans closed shale production, reduced or stopped exporting oil altogether?
        No, and their shale production will not close once again, no matter how much we and everyone else would like it to.
        They will specifically support this industry, even at a loss to themselves, because this is their strategic and political trump card.
        
        Bakht
        
        0
        
        2 October 2024 10: 25
        
        That's the whole point, at a loss to themselves. Where did these 200 billion come from? These are the losses of investors and banks. Some of it was compensated by the state (the thesis "the market will decide" looks funny). But now there are no investors. Currently, large shale companies survive by playing on the stock exchange (share buybacks).
        Shale oil production has some peculiarities. Simple technical question. Why did the shale boom happen in Texas? And why did countries like Poland and Russia give up?
        Yes, it is a political trump card. The US is trying to become the world's gas station.