Is Trump's longer oil game the breakup of OPEC as well as Iran's government?

[Tom Kirkman + 8,860]

I've alluded to this before:

but it seems others have also been thinking similar thoughts.  Perhaps Trump is trying to kill 2 birds with 1 stone...  disrupting both Iran's government and the OPEC cartel.

Trump Is Fracturing OPEC

Many OPEC members are already crying foul, accusing Saudi Arabia of doing Trump’s bidding. It isn’t clear that Saudi Arabia will go as far as increasing by 2 mb/d, as Trump wants, but the promise to plug any supply gap is a not-so-subtle acknowledgement that Riyadh is ready backstop Washington’s plan to shut in Iranian supply.

...

Thus, the aggressive anti-Iran campaign from Washington – a campaign that Riyadh supports – is driving a wedge between OPEC members. "Putting aside the fact that Saudi Arabia has no such capacity to bolster its crude output, this demand could be inferred as an order for the kingdom to walk out of OPEC," Iran’s OPEC governor Hossein Kazempour said, referring to Trump’s request for 2 mb/d of Saudi supply, according to S&P Global Platts.

Leaving aside the wisdom of burning through the entirety of global spare capacity, or whether Saudi Arabia will actually go that far, the seeming willingness to comply with Trump’s request for more oil, which will come at the direct expense of an OPEC member, could fracture the cartel. OPEC could continue to exist on paper, and it will continue to meet, but Saudi Arabia and Russia (and to a lesser extent, a few Gulf States) are the only ones coordinating oil market policy. This dynamic has been underway for the better part of two years now, but President Trump is accelerating these changes.

[Jan van Eck + 7,558]

Yet, those two million barrels are trivial when compared to the reduction in US liquid transport fuels consumption of possibly some 7 million bbl/day were the USA to go gangbusters and spend say 100 billion on drilling highway tunnels through the 100 busiest mountain overpasses.  And The Donald is a "builder," albeit self-proclaimed and self-promoted, so you would think that this would be much to his taste. 

The advantage of drilling big tunnels are many fold.  First, the big tunnel-boring machines are built up in Washington State, so to order up a dozen or two of these gigantic machines curries voter favors up there.  Second, you can do a lot of tunnels simultaneously, as there are plenty of used machines available on the market.  Third, the cost is containable, perhaps 100 billion, spread out over a few years, so not a huge whack.  Fourth, the result is definite, and not subject to some whim of a foreigner, it chops off usage, therefore demand, and therefore price. Fifth, it would ensure that the USA would be completely independent of outside forces; nobody can cause autos queued at gasoline waiting lines in the USA, ever again. 

And best of all, you don't touch any of the other structure, no tampering with the engines, or numbers of trucks, or anything.  The truck and car fleet simply uses less of the stuff, on exactly the same travel patterns.

To avoid the internal price of oil (for the shale drillers, remember) from collapsing, Trump puts another one of his tariffs on imported oil.  That way when the price of the OPEC oil collapses to $10 a bbl, it cannot be dumped into the US market displacing domestic drilling; the tariff of $35/bbl keeps it out.  And the shut-in oil then is someone else's.  

You want to give nightmares to the OPEC guys, all you have to do is reduce US usage. 

Edited July 5, 2018 by Jan van Eck

[DanilKa + 443]

3 hours ago, Jan van Eck said:

Yet, those two million barrels are trivial when compared to the reduction in US liquid transport fuels consumption of possibly some 7 million bbl/day were the USA to go gangbusters and spend say 100 billion on drilling highway tunnels through the 100 busiest mountain overpasses.  And The Donald is a "builder," albeit self-proclaimed and self-promoted, so you would think that this would be much to his taste. 

drop this idea to the "Subsidy Fraud-boy" (definition of Mark B. Spiegel, not my) Elon Musk and his boring company - he'll put enough lobbying $$$ at work to make it happen... 

You may be listening to CBNC too much - US still imports ~5MM bopd so tariffs on it won't really help driving gasoline price down...

And while we were chatting, there is a thread (of unknown credibility) of 1/3rd of world oil production traffic route being blocked - that's >$200 oil for you.

[Jan van Eck + 7,558]

2 minutes ago, DanilKa said:

 

You may be listening to CBNC too much - US still imports ~5MM bopd so tariffs on it won't really help driving gasoline price down...

 

 

Hi, and thank you for the comment.  Actually, I do not listen to CNBC at all.  Getting past that, if you can reduce US consumption by 7 million bbl/day, then even if today there is an import of 5MM, you still are going to be oil independent.  Eventually.

Now, if that happens, then someone somewhere is going to be looking to displace some US production, and get their own oil in.  And you block that with the tariff wall, shutting them out and down.  That way, someone else's ox is gored.   

Finally, if you both build tunnels and rationalize rail lines  so that rail freight interlining works smoothly and fast, then you will see truck trailers riding on flatcars, and that also will chew away at fuel consumption.  Eventually, as we get better at it, the entire US import structure is gone.  That will really shake the oil markets.  Cheers.

[DanilKa + 443]

13 minutes ago, Jan van Eck said:

Hi, and thank you for the comment.  Actually, I do not listen to CNBC at all.  Getting past that, if you can reduce US consumption by 7 million bbl/day, then even if today there is an import of 5MM, you still are going to be oil independent.  Eventually.

Now, if that happens, then someone somewhere is going to be looking to displace some US production, and get their own oil in.  And you block that with the tariff wall, shutting them out and down.  That way, someone else's ox is gored.   

Finally, if you both build tunnels and rationalize rail lines  so that rail freight interlining works smoothly and fast, then you will see truck trailers riding on flatcars, and that also will chew away at fuel consumption.  Eventually, as we get better at it, the entire US import structure is gone.  That will really shake the oil markets.  Cheers.

Pls don't take an offense at suggestion of listening to CNBC:) Quite a few people got wrong impression that US is independent from foreign oil - not quote yet there.

I can see all of good thing you've listed happening - when oil price exceed $150 and stay there...

US is able to defend itself from expensive imported crude - with help of greepeace and 350.org- like organizations blocking pipelines construction in Canada so its oil sold to US at a hefty discount (unsubstantiated private speculation).

[Mamoun + 4]

Good morning everyone, I'm appreciated for accepting as one of Oil Price members, and I'd like to participate my thoughts in future of oil and gas energy.

My regards.

Edited July 5, 2018 by Mamoun
I'm not complet my comment

[Tom Kirkman + 8,860]

2 hours ago, Mamoun said:

Good morning everyone, I'm appreciated for accepting as one of Oil Price members, and I'd like to participate my thoughts in future of oil and gas energy.

My regards.

Welcome to the Oil Price Community forum, Mamoun  : )

Please feel free to introduce yourself in the New Members thread:

 

[Jan van Eck + 7,558]

10 hours ago, Mamoun said:

Good morning everyone, I'm appreciated for accepting as one of Oil Price members, and I'd like to participate my thoughts in future of oil and gas energy.

My regards.

Hi, Mamoun!

And perhaps you could tell us a little bit about the picture, it looks fascinating!  Where is it and what is it?

Thanks, Jan van Eck

[Jo Mack + 43]

Just say en as so.eone based in the Permian Basin in New Mexico, we can now actually compete again for Federal Leases and have increased our production significantly.  We haven't heard a whisper about tunnels??  As one member of the Community mentioned, we still import about 7 to 8 million of oil a day.  We're way behind on pipelines because of Bush and Obama so we have bottlenecks all over the country.  Trump should not interfere with oil production as Regan did in the 80's.  Almost destroyed the industry.  Trump can't break up OPEC since most of them no longer have spare capacity.  They say, for example, that Venezuela will have to import soon.  Mexico will soon be on that same path, given their recent elections.  Everyone needs to stay out of it and let the industry do what it needs to do.

[DanilKa + 443]

4 hours ago, Jan van Eck said:

Hi, Mamoun!

And perhaps you could tell us a little bit about the picture, it looks fascinating!  Where is it and what is it?

Thanks, Jan van Eck

looks like Ras Tanura in Saudi. Not 100% sure.

[DanilKa + 443]

3 hours ago, Jo Mack said:

Just say en as so.eone based in the Permian Basin in New Mexico, we can now actually compete again for Federal Leases and have increased our production significantly.  We haven't heard a whisper about tunnels??  As one member of the Community mentioned, we still import about 7 to 8 million of oil a day.  We're way behind on pipelines because of Bush and Obama so we have bottlenecks all over the country.  Trump should not interfere with oil production as Regan did in the 80's.  Almost destroyed the industry.  Trump can't break up OPEC since most of them no longer have spare capacity.  They say, for example, that Venezuela will have to import soon.  Mexico will soon be on that same path, given their recent elections.  Everyone needs to stay out of it and let the industry do what it needs to do.

Welcome, Jo. Can't agree more.

Any relation to Joe Mach of YUKOS fame?

[DanilKa + 443]

fresh off the press:

Oil is now a game of chicken

Trump may consider reducing Iran oil exports to zero…
President Trump announced back in May that the US would unilaterally pull out of the Iran nuclear deal and re-impose sanctions on Iranian oil exports. Yet, Iran represents about 5% of global oil supplies. Can the US Department of State avoid issuing waivers to some Iran oil importers? In our projections, we have just factored in a 0.5mn b/d reduction in Iranian output rather than the widely discussed “zero tolerance” policy. This is because we believe a complete cutoff of Iran exports would send oil prices up sharply just ahead of the US midterm election. Moving from a 0.5mn to a 1mn b/d Iran export curb would push Brent prices up by $8 to $9/bbl, on our estimates. In our view, US sanctions could prove ineffective if rising oil prices largely make up for any lost Iran volumes.
…but Saudi has never pumped more than 10.6mn b/d
So could King Salman instruct Saudi Arabia to increase production and make up for any missing Iranian volumes? Perhaps. But going back to 1970, we observe that the highest annual average production recorded by Saudi was 10.4mn b/d in 2016. More recent history shows Saudi has never produced more than 10.6mn b/d on average over a single month. And even in the recent period, we have observed a steep decline in domestic Saudi oil inventories. Thus, it appears the oil market has little confidence that Iran volumes can be easily replaced. Of course, dealing with a new set of Iranian crude oil export restrictions would be easier if other ailing OPEC+ deal members like Venezuela, Libya, Angola, Mexico, or Nigeria were able to simply maintain their production levels.
If Saudi can’t fill the gap, demand may have to slow
With OECD oil inventories coming down and the oil market poised to remain in deficit, the core question here is if Saudi can fill the gap as the US increases the pressure on Iran. Alternatively, we may just face an episode of oil demand destruction, although a strong USD backdrop could set a lower oil price cap. In different words, it may be hard to see Brent trading a lot higher than $100/bbl if the EUR drops to 1.12, as our FX team expects. How high could oil prices go from here? It may be complicated politics, but it is simple math. We estimate that every million b/d shift in S&D balances would push the oil price by $17/bbl on average. So based on those assumptions, we estimate zero Iran exports could push oil up by $50/bbl if Saudi caps out. We expect in this game of chicken, someone will blink before that happens.

BoA Merrill Lynch Global Commodities research Energy Weekly report.

[Mamoun + 4]

This picture of Electric power station in southern of Riyadh city, capital of Saudi Arabia.

Edited July 6, 2018 by Mamoun

[Mamoun + 4]

Thanks Mr Tom for your notification, it's power plant No. 10 ,  and here's new picture of the power plant station southern of Riyadh city.

Thanks.

Edited July 6, 2018 by Mamoun