Oil & Gas - Energy - Commodities - Resources (OILBRENT)

[DocLevi]

How Saudi Arabia’s high-risk oil gambit could destroy OPEC while feeding the ISIL monster....
It is far from clear whether Saudi Arabia can continue to prop up allies in the region and bankroll Egypt, already bedevilled by Islamic State of Iraq and the Levant (ISIL) forces in the Sinai. ISIL is targeting Libya and Algeria, where the old regime is fraying and the oil and gas revenues fund the social welfare net.
....
Saudi Arabia itself is vulnerable. There have been five ISIL-linked terrorist acts on Saudi soil since May, including an attack near the oil installations in Abqaiq, where an aggrieved Shia minority sits on the Kingdom’s oil reserves.
The Daily Telegraph
http://business.financialpost.com/news/energy/how-saudia-arabias-high-risk-oil-gambit-could-destroy-opec-while-feeding-the-isil-monster

"LONDON – The rumblings of revolt against Saudi Arabia and the OPEC Gulf states are growing louder as half a trillion dollars goes up in smoke, and each month fails to bring about the long-awaited killer blow against U.S. shale.

[How OPEC has earned itself a permanent pay cut in its self-launched oil price war

FAYEZ NURELDINE/AFP/Getty Images
A year after instigating a market share war that crushed oil prices and devastated the oil business the world over, the oil cartel that is the Organization of the Petroleum Exporting Countries is meeting again on Dec. 4 in Vienna to assess the situation. Saudi Arabia and its rich Gulf allies, which control the cartel, could back off their strategy of increasing market share at the expense of prices and give oil a lift. But don’t count on it.
http://business.financialpost.com/financial-post-magazine/how-opec-has-earned-itself-a-permanent-pay-cut-in-its-self-launched-oil-price-war ]

Algeria’s former energy minister, Nordine Ait-Laoussine, says the time has come to consider suspending OPEC membership if the cartel is unwilling to defend oil prices and merely serves as the tool of a Saudi regime pursuing its own self-interest. “Why remain in an organization that no longer serves any purpose?” he asked.

Saudi Arabia can of course do whatever it wants at the OPEC summit on December 4. As the cartel hegemon, it can continue to flood the global market with crude oil and hold prices below US$50. It can ignore desperate pleas from Venezuela, Ecuador, and Algeria for cuts in output to lift prices to US$75. But to do so is to violate the OPEC charter protecting all members.

“Saudi Arabia is acting directly against half the cartel and is running OPEC over a cliff. There could be a total blowout in Vienna,” said Helima Croft, a former analyst at the U.S. Central Intelligence Agency and now at RBC.

The Saudis need OPEC. It is how they leverage their global influence, much as Germany attains world rank through the EU.

The 29-year-old deputy crown prince now in charge, Mohammad bin Salman, cannot lightly detonate a crisis within OPEC just months after entangling his country in a calamitous war in Yemen.

The International Energy Agency (IEA) estimates the oil price crash has cut OPEC revenues from US$1 trillion a year to US$550 billion, setting off a fiscal crisis that has been going long enough to mutate into a geostrategic crisis.

Mohammed Bin Hamad Al Rumhy, Oman’s oil minister, said the Saudi bloc had blundered into a trap of their own making. “If you have one million barrels a day extra in the market, you just destroy the market. Sorry, I don’t buy this, I think we’ve created it ourselves,” he said.

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The Saudis say they are letting the market decide, a claim that brings a wry smile to energy veterans. One might legitimately suspect that they will revert to cartel practices once they have smashed their rivals.

One might also suspect that part of their game is to check solar and wind power in a last-ditch effort to stop the renewable juggernaut. If so, they are too late, but OPEC can throw sand in the wheels.

At root is a Saudi failure to grasp how quickly the ground is shifting from under the feet of the petro-rentier regimes. OPEC forecasts that oil demand will rise relentlessly, adding 21 million barrels per day to 111 million by 2040 as if nothing had changed.

Saudi Arabia is acting directly against half the cartel and is running OPEC over a cliff
Yet the climate pledges made by 155 countries for the COP21 summit imply a radical shift in the global energy landscape. Subsequent deals may bring a “2 degree world” within sight.

The International Energy Agency says oil demand will be just 103 million barrels per day in 2040 under modest carbon curbs. It would collapse to 83.4 million barrels per day if global leaders grasp the nettle.

OPEC might do better to target prices of US$75 to US$80 and maximize revenues while it can.

The current war of attrition against shale is a hard slog. U.S. output has dropped by 500,000 barrels per day since April, but total production is still 9.1 million barrels per day, where it was a year ago when the price war started.

“The expectation that a swift tailing-off in tight oil would lead to a rapid rebalancing in the market has proved to be misplaced,” said the IEA. Shale costs are plummeting as rig fees fall and drilling times are slashed.

There is a time-lag effect. Shale cannot keep switching to high-yielding wells forever. Hedging contracts are running out. The U.S. energy department expects a further loss of 600,000 barracks {Comments: yes it was written as barracks... so does this mean CIA mind control or demons making him probably think of the barrack bombing in the early eighties ???} per day next year, but this is not a collapse. By then OPEC will have forgone another half trillion dollars. “What is winning supposed to look like for the Saudis?” said Croft.

High-debt frackers will go bankrupt. Yet the infrastructure and technology remains. Stronger players will move in. Output will bounce back as soon as oil nears US$60.

Saudi Arabia has deep pockets but it has been downgraded to A+ by Standard & Poor’s and has a budget deficit of US$100 billion a year, forcing it to burn through foreign reserves.

Austerity has arrived. An order from King Salman – marked “highly urgent” – has frozen new hiring by the state, stopped property contracts and purchases of cars, and halted projects. The Kingdom will have to slim down the edifice of subsidies and social patronage that keeps the lid on protest.

It is far from clear whether Saudi Arabia can continue to prop up allies in the region and bankroll Egypt, already bedevilled by Islamic State of Iraq and the Levant (ISIL) forces in the Sinai. ISIL is targeting Libya and Algeria, where the old regime is fraying and the oil and gas revenues fund the social welfare net.

Iraq is pumping oil a record pace but it is nevertheless spiralling into economic crisis, with a budget deficit of 23 per cent of GDP. Public sector wages are to be cut. The government has slashed funding for the “Popular Mobilisation” militias fighting ISIL.

Helima Croft said ISIL is now operating close to Iraq’s oil facilities near Basra, detonating a car bomb in Zubayr last month. They clearly have the ability to attack oil targets, and have an incentive to do so since oil production is their main source of income.

Al Qaeda showed it could launch a devastating surprise when it crossed into the Sahara two years ago and seized the Amenas gas facility in Algeria, killing 39 foreign hostages. Variants of ISIL can strike anywhere they find a weak link.

“We remain concerned that they may eventually set their sights on a major oil facility. These are obvious targets, and none of this geopolitical risk is priced into the market,” she said.

Saudi Arabia itself is vulnerable. There have been five ISIL-linked terrorist acts on Saudi soil since May, including an attack near the oil installations in Abqaiq, where an aggrieved Shia minority sits on the Kingdom’s oil reserves.

It would be a macabre irony if Saudi Arabia’s high-risk oil gambit so enflamed a region already in the grip of four civil wars that the Kingdom was hoisted by its own petard. That would certainly clear the global glut of crude oil.

The Daily Telegraph"