Researcher Shatha Khalil *
In the economic analysis of high and low oil prices, there is a clear and simple answer: it is the United States only, not others. Until 1970, the United States was an exporter of oil, and its production equaled its consumption only that year.
It maintained a surplus in its production capacity by three million barrels per day, and increased production whenever it wanted to reduce the price, and reduce production when it wanted to raise the price, and lost this advantage when it became an importer of oil from 1970 to the present day, and this distinguished role was given as it is called to Saudi Arabia in coordination with the US to control oil prices.
The answer is clear, according to a study at Harvard Graduate School of Management, which says: “Control of the price of oil and the amount of oil production are two pillars of US national security.”
So the quantity of production and the price are the pillars of US national security, it is obvious that the United States does not grant it to anyone, and that the decisions of the price and the amount of production are American 100%.
To illustrate that the United States is secretly planning to reduce prices to stimulate its economy, we cite the following example:
The researcher and economic adviser Abdul Hai Zalloum, as stated in an article that “a very secret study” of the US Department of Energy and addressed to the State Department on 24/10/1984 stated: “Our policy should be to move towards the decline of oil prices 30-40 percent, in order to recover the US economy , and in an urgent telegram from the State Department to its embassy in London encrypted a top secret in which I t stated : “The Secretary of State is very interested in a study on the impact of a significant decline in oil prices.”
This was in telegram 081715 sent in March 1985.
Prices have fallen from an average of $ 26 a barrel in the winter of 1985, to less than $ 10 a barrel in 1986, just as today was the reduction to stimulate the US economy, and to exhaustion of the Soviet Union, which was fighting in Afghanistan.
But why is this or that state doing an act contrary to its interests? A student at the Saudi Petroleum College in Dhahran,asked Saudi Arabia’s Minister of Petroleum, Ahmed Zaki al-Yamani, in January 1981, asked this question: “A Saudi citizen who looks at the current oil policy will find that the Kingdom produces more than its economy needs and sells its oil at below-current rates , even lower than the prices sold by other Gulf states, however, this sacrifice is met with hostile attacks by the press, the media, and even senior government officials in Western countries, don’t e think that the time has come to stop sacrificing ourselves in order to satisfy consumers of oil? ”.
The answer that the questioner did not hear is: Because the regimes want to keep themselves alive, the United States is sitting on the oilfields! Of course, the decision is not Saudi Arabia’s decision, because if you cut production today to only three million barrels instead of ten, the price would rise to $ 120, and income would be equivalent to what you get today by producing 10 million barrels.
Who is the winner and loser (producers or consumers), studies show that the losers are producers of oil?
The biggest winner is the United States, and the biggest loser is the oil-producing countries, especially the Arab countries in the Gulf. Let the figures speak: Oil revenues represent 90% of Saudi exports and 80% of its budget income, which is most affected than other countries. Nigeria depends in its revenues on Oil by 75%, Russia 50%, Iran 47%, and Venezuela 40%.
A price drop from $ 120 to $ 30 means a drop of $ 90 / barrel.
The United States imports about 7 million barrels per day, or the saving of $ 630 million / day, or about $ 230 billion per year, in addition to stimulating the US economy by the price difference of domestic production about $ 360 billion / year.
This savings goes into the pocket of the American people; the prices of gasoline, fuel and electricity have fallen, at the same time as these prices rose in the oil producing countries.
If the GCC production were 17 million barrels / day, the daily loss is about $ 1.53 billion a day.
The political and economic consequences of falling oil prices:
The sudden drop and the way it was, is an economic and political earthquake of high caliber, which will have global consequences, especially in oil-producing countries, as of June 2014 oil was sold at $ 115 / barrel.
The assumption was that the price would remain above $ 100 and slowly increase in the future. Based on this assumption, energy companies spent hundreds of millions of dollars in exploration and drilling on the high seas, extracting sand oil in Canada, shale oil in the United States, and heavy oil in Venezuela. Note that the most type of production cost at least $ 50 / barrel, and today the price has fallen below $ 30 / barrel, that is, today the price has fallen about 75% from the price of June 2014, making the so-called unconventional production mentioned above without economic feasibility Production will also be stopped by production assistance programs, the so-called secondary and tertiary ways, the reasons that the United States has called for resorting to an economic earthquake is basically based on two reasons:
First, the price drop in this seismic form is intended to “shake” the economy of rivals and opponents of the United States – Russia, Venezuela and Iran – but the target country is primarily – the Russian economy, and consequently the political earthquake.
The second reason is the global and US economy that has not recovered from its history of the 2008 financial crisis and its consequences, and there is an economic slowdown in Europe and even in China – falling prices help stimulate those economies and the biggest loser here is the producing countries.
The result of the deterioration of prices was that the Chavez party lost the elections on 6/12/2015, and its opponents came to power, who declared their intention to write off its reforms, and it was estimated that the price earthquake would be the same in Russia, the price of $ 50 was initially chosen as the most types of Unconventional production (shale oil, sand oil, heavy oil, high seas), can survive and continue at that price, the sudden was steadfast and the adaption of the Russian economy to that earthquake, after the collapse of the ruble, and further aggravated, sanctions imposed on Russia after the crisis of Ukraine , which stopped the possibility of temporary resort to the global financial network, the timing was chosen to hit the currency of Russian ruble in December 2014, where there was Russia’s foreign debt this month reached $ 70 billion, and about $ 40 billion in the next month.
The Russian central bank acted in a way that absorbed the blow that was hoped to be a knockout blow, largely adapting to the least possible losses.
The neoconservatives who run the world through US military and intelligence arms were shocked by Russia’s steadfastness and had to resume their war.
US public and private institutions have studied the step necessary to bring Russia to its knees , in a study by Bloomberg, 15 out of 27 respondents were asked about the price of oil that would shake the Russian economy, they replied that the price of the “earthquake” was $ 30 a barrel, and that Russia unprepared for this second shock, they believed that this price would shake the financial and banking system, and would expose the ruble to another sharp drop, so America decided to drop prices to $ 30.
The Russian Finance Minister said on 25/11/2015 that Russia coped with falling prices, and that a fall of up to $ 40 will not affect much of Russia, the Central Bank of Russia has studied the results of the price of less than $ 40 ($ 30 for example), and came out with the result that the Russian economy It will shrink by 3%, commodity prices will increase by about 7%, as the Soviet Union was destroyed with oil prices falling below $ 10, and a heavy war in Afghanistan, the holders of power in the capitalist world hope to restore the history again in the fall of the Putin regime by hitting the Russian economy and wars of attrition wherever possible.
Before I make my point, I convey what the International Energy Agency (IEA) predicted, predicting that the price of oil would be between $ 50-60, between now and 2020, and $ 85 by 2040, I think this prophecy is politicized.
From a technical point of view, I will only read my reading of the subject of prices, given that the issue is strongly intertwined with politics . If the US and Arab oil producers’ policy is changed to reduce production, prices will rise faster than I can only technically mention.
US oil production in January 2010 was 5.5 million barrels per day, and became 9.6 million barrels per day in July 2015 – all of this increase came from shale oil that could not be produced at $ 30 – if about 4 million of US barrels per day came out of the market , and one million barrels of wells produced by secondary and tertiary aids, US production will return to the lowest level in 2010, and this will raise prices despite the nose of the United States, especially if we add to this , the decline in sand oil production from Canada, in addition to the decline of wells Produced by the so-called (depletion rate) up to 3%, ie, a production drop of 3 million barrel.
Most likely, the total of these declines will clear the surplus in global inventory within a year, bringing prices to $ 50-60, the production sector.
What is happening now is a truly global war between the United States and its proxies and followers and between Russia and the Brix countries in general, and the brutal capitalism has not been embarrassed to wage a second world war, which killed 50 million people, destroyed entire countries, and is now running another world war. Grinding bones – to get the world out of the way it looked.
The Arab people are paying the bills of these wars from Petrodollars, from human beings, from stone, and we are a major theater of the theaters of this war.
Will we see a return to such prices in the near future? No one knows exactly how long oil prices will continue to fall.
There are a number of factors that have radically affected global oil markets, including:
1. The rise of the United States as an oil exporter.
Between 2012 and 2015, the United States increased its oil production from 10 million to 14 million barrels per day, surpassing Russia and Saudi Arabia at the top of the list of most oil producing countries, this extra large amount of oil available in the global market, equivalent to the production of Nigeria, Angola and Libya of oil, which is one of the most oil producing African countries.
This increase in US production is attributable to technological advances in the fracking method, which relies on pumping water and chemical solutions into the rock layers, in order to expand the cracks in that layer and reach the so-called rock oil and gas, which cannot be extracted by traditional methods, and although it is relatively expensive to extract oil in this way, high oil prices in recent years have made this investment feasible.
Fracking in Patagonien is feasible but very expensive to invest in. .
The arrival of a US tanker loaded with oil to the port of Foss in France, the first commercial oil shipment exported by the United States since the 1970s, a milestone in the history of oil markets.
2. Increase production in Iraq.
The world did not notice that last year Iraq was the second country in the world to witness an increase in oil production, despite the conflicts witnessed, but managed to increase its crude oil production from 3.3 to 4.3 million barrels per day, an increase of one million barrels, equivalent to Algeria’s entire production, it is the third largest oil producer in Africa.
Currently, Iraq produces more oil than it did before the US-led invasion in 2003. The majority of Iraqi oil comes from Kurdish autonomous areas in the north, which enjoy relative safety.
3. Iran’s return to oil exports.
4. Ocean oil in Brazil.
Brazil, too, is one of the countries that have increased its oil production over the past years. Between 2013 and 2015, Brazilian production increased from 2.6 to 3 million barrels per day. According to OPEC statistics, 72 new oil wells were drilled in Brazil last year compared to 87 wells in 2014.
Brazil has also strengthened its position in the world as a leader in deep-sea oil extraction techniques, after discovering large quantities of oil at depths ranging from four to eight kilometers between rock and salt layers.
But the prospects for the continuation of Brazil’s “oil miracle” are not encouraging. In order to reach these oil reserves in the deep ocean, large amounts of money should be invested that cannot be recovered at current world oil prices. In addition, the Brazilian semi-government oil company Petrobras recently was involved in several corruption scandals, forcing it to retract a number of its investments.
5. Saudi Arabia remains at low production rates, although it is able to raise production quickly in a relatively short time, and without bearing large production costs, pushing prices down, but also able to curb its oil production in order to raise prices globally, especially as it is the third largest Exporter of oil in the world.
The collapse of the oil price… Confuses the papers of the economies of producing countries.
Saudi Arabia opposed a reduction in oil production in the face of US competition and rival Iran, but the world’s second-largest oil exporter is also facing a difficult situation. The IMF has warned of a large budget deficit, and now the Saudi authorities want to include taxes and cancel subsidies of consumables and electricity.
By keeping world oil prices low, Saudi Arabia is pursuing a political goal: curbing its key regional rival, Iran, in the global market.
6. The end of China’s economic miracle.
China’s economic growth slowed to 6.2 percent in the second quarter of 2019, the slowest pace in 27 years, as demand at home and abroad fell in the face of US trade pressure.
It seems strange that investors talk about an economic crisis in China, but observers fear that official figures hide a darker picture of the Chinese economy, the collapse of the Chinese financial market at the beginning of the current world, triggered a warning signal around the world, that the Chinese economic miracle may have reached Its end.
In the past 10 years, China’s oil consumption has risen from seven million to 11 million barrels per day, equivalent to that of Latin America and sub-Saharan Africa combined, so it’s no wonder that China’s economic crisis may affect global oil prices.
7. Mild winter in the northern hemisphere.
According to the US Meteorological and Oceanic Agency, 2015 has been the warmest winter since the weather recording process began in the 19th century, and because of El Niño phenomenon, it is expected that the current year to see temperatures similar to the previous year.
Moderate and relatively warm winters in the northern hemisphere have led to reduced demand for heating fuels in Europe, the United States and Japan, which has pushed down global oil prices.
Declining OPEC control:
The 14 members of the Organization of Petroleum Exporting Countries (OPEC), including Saudi Arabia, Iraq, Iran, Nigeria and Venezuela, agreed on a combined production of 32.5 million barrels per day, thus controlling one-third of the world’s oil production, estimated at 97 million barrels per day.
Theoretically, OPEC could easily reduce production to push prices up, but the organization has not yet succeeded in curbing oil production altogether, as its members still maintain stable production rates, or extract more quantities of oil. OPEC is unable to prevent oil prices from falling.
Against this backdrop, with a global supply surplus of more than 2 million barrels per day, pressure is mounting on OPEC members to hold an extraordinary meeting that will result in a cut in production, which is currently about 1.5 million barrels per day above the production ceiling of 30 million barrels per day (bpd) , while acknowledging that OPEC’s new policy, in which it has abandoned what is known in the energy literature as the likely product, in exchange for a policy of maintaining market share, especially the promising market in Asia, a policy that has come to succeed so in the continued decline in the number of drilling rigs In the United States to less than 700, compared to 1,650 in October 2014.
However, there is an important indication that OPEC is determined to reduce production to rebalance the oil market, especially after the fruitful meeting held in Algeria, on the sidelines of the World Energy Conference, where it was agreed to reduce production from 33.2 million barrels per day to 32.5 million Bpd.
Finally, the oil price forecast:
Analysts were cautious about prices in 2019 as their estimates were lower than expected on the back of uncertainties about global growth and pressure from US production.
According to a report by the French newspaper Les Echos, pointed to several factors to adjust their expectations of oil prices, including the size of global demand, and the application of OPEC’s decision to cut production, and supplies of US crude, as well as the position of the US administration on Iran.
There are concerns about demand, because the recent fall in prices is partly related to concerns about the global slowdown fueled by the US trade war on China and its implications for global oil demand.
Translated by : mudhaffar al-kusairi
Economic Studies Unit
Rawabet Center for Research and Strategic Studies