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Saudis lose US clout over oil price war By STEVE AUSTIN for OIL-PRICE.NET, 2016/06/20 In an event that went largely unnoticed, we have, in fact, passed the point in human history where OPEC's key member Saudi Arabia can dictate oil prices any longer. No one seems to have taken in the momentous occasion if not comprehended its historical significance. Much hasn't been said or written, it has to be added.Long time readers of oil-price.net will recall how as early as 2012 we had not only predicted the takeover of the entire region by ISIS, but also anticipated in 2013 that a surge in oil price volatility was on its way. In addition, we carried a comprehensive analysis, just weeks before the oil price collapsed.Today we are at a similar turning point of a major milestone clustered with many defining clauses. Consequently, there are some drastic geopolitical implications for all nations from the producers of the Middle East to western democracies; from consumers in Asia to Europe. The world is about to change.< Edited >
< Edited >Now, for the details.The day OPEC lost grip on oil pricesRespectable leaders lead by example and by breaking the golden rule of 'supply control' and by demanding others to obey, 'leader' Saudi Arabia not only harmed other OPEC member countries, but also lost all its credibility. And, reputation is one that is difficult to salvage once lost. Saudi Arabia did what it did, but the effect was felt by all. Breaking the rules of OPEC caused extreme hardships for other OPEC members. For example, Venezuela and Nigeria's oil payments contribute more than 90 percent of their total revenue from exports. Now, after Saudi's ill timed move, both countries are not only crumbling under massive revenue loss because of low oil prices but are also on the brink of famine and civil war.Ever since then, OPEC hasn't been able to act in a cohesive coordinated way. So much so, OPEC meetings nowadays beget mayhem as members don't respect quotas any longer and are just happy to 'get something' for their oil. OPEC's clout has crumbled. The cartel has lost the cohesion that once made it strong. < Edited >
Thousands of South Asian construction workers, as well as other employees, are being laid off by local contractors in Saudi Arabia, without pay issues resolved, as the country's oil-based economy reels under falling prices and halted or deferred projects, leaving the workers without documents to return home or even food to eat.While the Saudi government and those of affected expatriates are moving to expedite relief and repatriation efforts, and other contractors are offering to hire stranded workers, pay disputes remain central.More than 7,700 Indian workers laid off without being paid for months have been given shelter in 20 camps. The majority had worked for Saudi Oger, a construction company owned by the family of former Lebanese Prime Minister Sa’ad Hariri, said Vikas Swarup, a spokesman for the Indian Ministry of External Affairs.Riyadh-based Saudi Oger laid off more than 30,000 staff without pay settlements in its Saudi branches in Riyadh, Jeddah, Makkah, Madinah, Jazan, Hail and the eastern province.Affected Indian workers at Oger and two other Saudi contractors could "either take repatriation back to India or take a relocation," said Swarup at a press briefing in early August.The Saudi government could soon acquire the company, which owes its employees some $800 million in salaries as well as payments to subcontractors and banks, according to media reports since last month. But Bloomberg reported last month that Deputy Crown Prince Mohammed bin Salman said in an interview that Oger’s problems were "unrelated to the Saudi economy."Saudi Oger did not comment to Bloomberg or local media, which have also reported a potential bankruptcy or government takeover of the powerful Binladen construction company, also now in financial distress. The Saudi labor minister told Reuters that Binladen has promised to complete payments this month.Atul Jain, a director of Indian construction firm Punj Lloyd, which is active in Saudi Arabia and the Middle East, acknowledged to ENR that the oil sector slump "has impacted the projects and contractors in this space. However, this is applicable for new investments. Clients have honored the investments which were planned earlier and our current projects belong in the latter category."Workers from Pakistan, Nepal, Bangladesh and the Philippines also are affected. While employers are required under Saudi labor law to pay the cost of repatriating non-Saudi nationals after termination of their employment, officials at the Bangladesh embassy in Riyadh told local press there was little chance that more than 1,500 Bangladeshi migrants working for Saudi Oger would get back pay anytime soon. “We are now visiting labor camps to prepare a database of Bangladesh workers," said Sarwar Alam, a labor counselor.Pakistan’s Ministry of Foreign Affairs has confirmed that more than 8,500 Pakistani migrants working for Saudi Oger and the two other contractors are in eight camps and are also currently facing problems with pay.Website ArabianBusiness.com says that 2,429 Filipino workers have already opted to continue to work at Saudi Oger while the Philippines' consulate negotiates unpaid wages.Also, according to Middle East Construction News, up to 200 French engineers and managers on Saudi Oger projects in the kingdom have filed suit against the firm for nine months of back wages, after negotiations did not resolve issues.Visits by Indian ministers to Saudi Arabia resulted in just 100 Indian workers returning home. The rest have refused to come back until pay issues are settled. Human rights organizations have long advocated to end the system of "kafala" in Gulf countries, which allows employers to hold expatriate passports.While the Indian embassy has promised to provide passports and tickets to affected workers, the Saudi government must issue them exit visas, a time-consuming process. Officials have asked Indian workers who have lost their jobs to file their claims by Sept 25. “We will bring them back free of charge," said Swaraj. Added the Indian consulate in Jeddah: "There is no point in waiting there indefinitely.”Swarup assured workers willing to be transferred to other contractors that they would not have to pay added fees or charges, and would not need consent of their current employers. “We believe that many companies, including some Indian construction firms [in Saudi Arabia], are interested in taking the services of the retrenched workers,” he said.The situation has brought to light embedded issues in Saudi labor law and the status of immigrant labor, for whom arbitration has been almost impossible given the high legal costs. Recently, Saudi Minister of Labor and Social Development Mufrej Al-Haqbani was quoted in local media saying the workers would be provided with legal representation to present their claims in one of 37 labor courts.Major contractors in Saudi Arabia with political and financial clout dominate the domestic construction market, taking advantage of the government’s preference to deal with local companies. Under the country's "Nitaqat" system, employment contracts for Saudi nationals can be open-ended, while those for expatriates are for fixed terms with a duration not to exceed what is specified in workers' residency visas and work permits.“All companies operating in the Middle East need to comply with local labor laws. Each country specifies the percentage of local to expat labor," says Jain. "We are not facing any problem in getting our people mobilized for our projects."
Global oil glut set to last at least until mid-2017: IEABy: Agence France-PresseSeptember 13, 2016 5:11 PMPARIS - A global oil glut that has hurt producers but means cheaper pump prices for consumers looks set to go on at least six months longer than previously thought, the International Energy Agency said Tuesday.The IEA said demand growth was slowing while supply was rising, meaning the glut was now due to go on "at least through the first half of next year". The Paris-based body had earlier seen the oil oversupply disappearing in the latter part of 2016.The timing of the world oil market's return to balance is "the big question", the IEA said in its monthly report, adding that current prices -- above $45 -- would suggest supply falling and strong demand growth.(...SNIPPED)
In oil price battle with Saudi Arabia, it’s advantage IranMoneywebJavier Blas, Bloomberg1 day agoThe biggest oil exporter has swapped its traditional role as price dove with regional foe Iran, for years OPEC price hawk. The government in Riyadh is now offering a deal -- including its first output cut in eight years -- to boost prices; Tehran is dragging its feet. At the center of the reversal is their contrasting thresholds for enduring economic pain."Both countries are coming from different positions," said Jason Tuvey, Middle East economist at consulting firm Capital Economics. "Iran has been under sanctions until recently, so it’s getting an economic boost as investment returns and oil output rises. Meanwhile, Saudi Arabia is facing steep fiscal cuts."The contrast between the two countries is stark. Iran, never as dependent on oil revenue as its neighbor, has seen prospects boosted by rapprochement with the west. In Saudi Arabia, tentative moves toward economic reform haven’t prevented two years of weak prices causing financial havoc: it’s burning through foreign exchange reserves, government contractors have gone unpaid and civil servants will get no bonus this year.(...SNIPPED)
September 28, 2016The decision at this week’s meeting of the Organization of Petroleum Exporting Countries in Algiers to cut production was necessitated by Saudi Arabia’s tattered finances. The kingdom has the highest budget deficit among the world’s 20 biggest economies, it’s enduring a delay in its first international bond issue and now faces fresh legal uncertainty as the U.S. Congress voted Wednesday to allow Americans to sue the country for its involvement in 9/11. ...The consequences could be vast. Giants such as Exxon Mobil Corp. may soon be flush enough to revive abandoned projects. Finances of cash-strapped OPEC countries like Venezuela will get a boost. Russia and other independent oil-rich countries will have to decide whether to follow Saudi Arabia’s lead. U.S. shale producers, which OPEC hoped it could push into bankruptcy, will use higher prices to drill new wells, and American consumers, who’ve enjoyed the lowest gasoline prices in more than a decade, will pay more at the pump.
Russian oil major says US shale growth imperils OPEC dealMonday, 13 Mar 2017 | 11:40 AM ETReutersA recovery in U.S. oil output may deter OPEC and non-OPEC producers from extending production cuts beyond June and might lead to a new price war, Russia's top oil major said on Monday.U.S. shale oil production had been in retreat as oil prices tumbled from above $100 a barrel in 2014 to below $30 in 2015, making costly fracking processes less profitable.A deal by the Organization of the Petroleum Exporting Countries withRussia and other producers to rein in output by 1.8 million barrels per day (bpd) for six months from Jan. 1 lifted prices but also encouraged U.S. firms to boost supplies."It became evident that U.S. shale oil output has become and will remain a new global oil price regulator for the foreseeable future," Rosneft said in a written response to Reuters."There are significant risks the (OPEC-led) deal won't be extended partially because of the main participants, but also because of the output dynamics in the United States, which will not want to join any deals in the foreseeable future."Russia agreed to join OPEC supply curbs late last year despite initial opposition from Rosneft's boss Igor Sechin, one of President Vladimir Putin's closest allies."We think that in the long-term global oil demand dynamics and reduced investment during the period of ultra low prices will balance the market, but that the risk of a price war resuming remains," Rosneft wrote.Russia has yet to deliver on the pledged cuts, while Saudi Arabia has cut its production far below the levels it had pledged, compensating for waker compliance by other OPEC states.Rosneft said it came as a surprise to many observers that OPEC's compliance with cuts was more than 90 percent, and said the success was because the Saudi position on reducing production had "changed a great deal" from the past.The kingdom, the world's biggest oil exporter, had long refused to cut output under veteran oil minister Ali al-Naimi. He was replaced last year by Khalid al-Falih."It was Saudi Arabia which initiated the pricing war in the first place with the aim of radically increasing its market share by squeezing out producers of 'costly' oil," Rosneft said, in a reference to shale producers."This goal became impossible to reach because of the efficiency and viability of the Russian oil industry," it added.Naimi had forecast a collapse in output from Russia's mature fields. Instead, production has risen in the past two years to an all-time high of 11.2 million bpd, partly because a devaluation in the rouble reduced production costs.Rosneft said the only guaranteed route to balance the market was for all producers to limit supplies, but acknowledged this would not happen because U.S. shale producers would not join any such pact. U.S. law bars them from such action.
Has OPEC Underestimated U.S. Shale Once Again?By Tsvetana Paraskova - Mar 15, 2017, 3:13 PM CDTThe U.S. shale cowboys are back on their horses and leading a strong recovery in the oil patch that is not expected to falter even as WTI prices dropped last week below $50 per barrel for the first time in more than two months.With lessons learned from the oil price crash and budgets streamlined and focused on the most prolific shale plays, U.S. drillers are giving OPEC a hard time by raising output and hedging future production. Meanwhile, the cartel members are trying to cut supply and fix the price of oil at such a range that would allow them to reap higher oil revenues, but not allow the shale patch to recover too much too fast.Two and a half months into the supply-cut deal, it looks like OPEC is losing the campaign to prop up oil prices. The drop in prices that began last week saw them retreating to almost exactly the same level as on November 30 – just below $52/barrel for Brent - when the OPEC deal was announced, the International Energy Agency said in its monthly report on Wednesday.At the same time, reduced breakeven prices in many shale plays and forward locking-in of production is allowing the companies currently drilling in the U.S. to turn in profits even at a price of oil at $40 a barrel.The U.S. shale patch has not only emerged leaner and more resilient from the downturn, it has also hedged future production with contracts guaranteeing the price of the crude they will be pumping a year or two from now, Bloomberg reports, citing industry executives and analysts.According to Katherine Richard, chief executive at Warwick Energy Investment Group that holds stakes in more than 5,000 oil and gas wells, many of the U.S. drillers would not see their profits reduced unless the price of oil drops to the $30s or lower.So the drillers that have locked in their future production—and those include Parsley Energy, RSP Permian, Diamondback Energy, and Harold Hamm’s Continental Resources—probably didn’t worry much when the price of WTI dropped below $50 last week. This is a sign that OPEC may have underestimated—yet again—the resilience of the U.S. shale patch when the cartel decided to collectively curtail oil supply.Last week Saudi officials told American oil producers that there would be “no free rides” and that they should not expect OPEC to extend or deepen the output cuts to make up for the jump in shale production in the U.S.And U.S. shale output has been steadily growing in the past few months, thanks to, and quite ironically so, OPEC’s cuts that have been supporting WTI prices at above $50 (or at least above $48 this past week). The U.S. shale patch is expected to lift its April oil output by 109,000 bpd, the EIA said earlier this week.According to Michael Webber, deputy director of the University of Texas’ Energy Institute in Austin, who spoke to Bloomberg:“The cowboy spirit is back. Hedging is playing a big role.”The drilling spirit is indeed back, and the break even prices in the best shale areas are now below $40. According to Bloomberg Intelligence analyst William Foiles, in the Eagle Ford, for example, drillers in LaSalle County break even at $36 oil price, and at $39 per barrel oil in Gonzales County.In the Permian (and what’s a shale recovery without the Permian), wellhead breakeven prices in the Permian Midland have dropped from $71/barrel in 2014 to $36/barrel in 2016--a 49-percent decrease--the steepest among the main U.S. shale plays, Rystad Energy said in its Permian Midland review. The average wellhead breakeven price decrease in the main shale plays has been around 46 percent since 2014, Rystad Energy noted. So, in order for the U.S. shale to start thinking of idling rigs en masse again, oil prices would have to drop and stay at even lower for longer, at below $40. The leaner, meaner and more resilient U.S. shale is basically wiping out OPEC’s efforts to achieve higher oil prices with the output deal. The cartel seems to be caught between a rock and a hard place -- extending and/or deepening cuts and losing precious market share to U.S. shale, or ditching the price-fixing policy and letting the next oil price war begin.By Tsvetana Paraskova for Oilprice.com