With the U.S. on track to become the world’s largest oil producer by next year, it’s become popular in Washington and on Wall Street to call America the new Saudi Arabia. Yet the real Saudi Arabia hasn’t relinquished its role as the producer with the most influence over oil prices. Its reserves of 266 billion barrels, ability to pump as many as 12.5 million barrels a day, and, most important, its low cost of extracting crude still make it a formidable rival to the U.S., whose shale wells are hard to exploit. “Saudi Arabia is the only one in the position of putting more oil on the market when they want to and cutting production when they want to,” says Edward Chow, a senior fellow at the Center for Strategic and International Studies in Washington. The Saudis are also the most powerful member of OPEC, the 12-member group that’s increasingly facing off against Russian, U.S., and Canadian production. (continued here)
Yet there was a little unease in that Businessweek article. What was it?
An unanswered question is whether sustained lower prices will hurt the U.S. shale boom. Busting oil out of miles-deep shale using hydraulic fracturing and sideways drilling costs $50 to $100 a barrel, says the International Energy Agency, vs. pumping costs of $10 to $25 a barrel in the Mideast and North Africa. The point at which shale drilling turns broadly unprofitable is debated by analysts. The IEA says only 4 percent of U.S. shale oil production needs prices above $80 a barrel; Sanford C. Bernstein analysts put it around one-third. Shale oil accounts for 55 percent of U.S. production. (from here)
So where are we at now? MarketWatch reported this today.
Crude-oil prices again tumbled to five-year lows Monday, pressured by forecasts that a global glut of oil will persist into the first half of next year.
On the New York Mercantile Exchange, crude futures for January delivery CLF5, -0.76% dropped $2.79, or 4.2%, to settle at $63.05 a barrel. The U.S. oil benchmark logged the lowest settlement for a front-month contract since July 16, 2009, sliding further just one session after ending at levels last seen on July 29, 2009. (continued here)
When anyone suggests we might have to fight in the Middle East, Democrats wail and complain its all about oil. So why don’t we make some effort to protect our oil industry? Saudi Arabia — an OPEC member — is not a free market player. Saudi Arabia is a government that owns and sells oil. To protect our free market players, our government must not allow Saudi Arabia to deliberately under price our oil producers. That is a vital national interest. In fact, this is so obvious we should be wondering why our leaders have so little to say about it. What kind of dunderheads are we?