It’s hard for any of us to stick our nose in King Salman’s business, but let’s be fair here — it really is his fault.
After all, it was the Saudis that ignited a price war in the hopes of bringing U.S. tight oil producers to their knees. By throwing their weight around in OPEC, the Saudis prevented the oil cartel from slashing output in late November 2014 in response to oil prices plummeting more than 50% last fall.
The rally cry over preserving market share echoed in the halls of the House of Saud.
At first, this is how the Saudi royal family must have felt as crude prices tumbled, causing an immense amount of pain and frustration to independent oil and natural gas companies in North America:
Unfortunately, they failed to realize that their strategy may have not been the best strategy… and soon the entire Saudi oil industry would be put into jeopardy.
Things just aren’t going to work out the way the Saudis envisioned, and the real casualties of their attack on crude prices will spark a civil war within OPEC.
OPEC Civil War Erupts
What we’ve got here is a failure to communicate, and some men you just can’t reach.
More than a year after this oil price war began, the Saudi goal of crushing U.S. production hasn’t exactly panned out the way it was supposed to.
According to the numbers at the EIA, the United States’ daily oil output still managed to increase roughly 7% year over year in June, and companies are still extracting well over 9 million barrels underneath U.S. soil. What the Saudis didn’t take into account were the huge strides in drilling efficiency being made by U.S. operators.
Those technological advancements are the reason we’re only now starting to see signs of production slowing — an inevitability given the low price environment.
For the first time in years, production in the major tight oil plays in the lower-48 states is beginning to decline. The EIA’s latest Drilling Productivity Report projected a decline of 83,000 barrels per day from two of the largest plays — the Bakken and Eagle Ford. (I’ll delve into one of these key oil-producing areas early next week and show you exactly how a small group of individual investors are sidestepping the volatility.)
The Saudis’ ardent defense to retain their market share isn’t just affecting U.S. producers. And if we’re going to be honest, it’s not just U.S. companies King Salman is targeting.
Saudi Arabia is going directly against its fellow OPEC members.
What’s so crazy ’bout war, anyway?
In 2005, the Saudis exported 1.537 million barrels of crude oil and petroleum products to the United States, about half of which was sent to PADD 3 (the Gulf Coast). Just five years later, nearly 70% of the 1.096 million barrels per day of Saudi oil that made its way to the U.S. came through the Gulf Coast.
During the first half of 2015, the Saudis exported an average of 1.05 million barrels of crude oil to the heavy oil refiners in PADD 3 — more than two-thirds of their total exports to the U.S.
In other words, not only have Saudi exports declined by about 35% over the last decade, but they’ve also been pushing out fellow OPEC members in their fight.
Just imagine how Nigeria feels after watching crude exports to the U.S. plummet 92% between 2005 and 2014:
Click Chart to Enlarge
And if you think Nigeria has it bad, just take a look at Venezuela. As you know, Venezuela’s heavy oil is among the worst quality oil in the world.
Let me be perfectly clear here: Venezuela desperately needs the heavy oil refineries along the Gulf Coast.
Don’t take my word for it; just take a deeper look into their exports…
In 2004, Venezuela exported about 1.5 million barrels of oil and petroleum products to the United States, approximately 80% of which was shipped to PADD 3.
Last year, the country only exported about 789,000 barrels of oil — 91% of which went through the Gulf Coast!
Click Chart to Enlarge
So it really shouldn’t be a surprise that Venezuela is begging both OPEC and non-OPEC producers to meet at a summit to address low oil prices. Venezuela’s president even suggested that the floor should be $70 per barrel.
Then again, even that wouldn’t save them… The country actually needs crude prices to be closer to $90 per barrel simply to balance its budget.
Make no mistake, dear reader; the OPEC alliance is unraveling at its seams due to the Saudi-led push for low oil prices.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
Keith’s keen trading acumen and investment research also extend all the way into the complex biotech sector, where he and his readers take advantage of the newest and most groundbreaking medical therapies being developed by nearly 1,000 biotech companies. His network includes hundreds of experts, from M.D.s and Ph.D.s to lab scientists grinding out the latest medical technology and treatments. You can join his vast investment community and target the most profitable biotech stocks in Keith’s Topline Trader advisory newsletter.
