oil production cut
Why does US never need to have an oil production cut?

I do not understand the following:

When OPEC countries are talking to each other, and with other non-OPEC countries e.g. Russia about an oil production cut, why is US never involved in the talking?

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58 minutes ago, joe rubens said:

I do not understand the following:

When OPEC countries are talking to each other, and with other non-OPEC countries e.g. Russia about an oil production cut, why is US never involved in the talking?

The U.S. producers are independent, and by U.S. law are not allowed to be part of a price fixing cartel.

U.S. indie oil producers generally behave like a herd of cats.  Good luck finding a cat herder.

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But this sounds unfair! Why must the OPEC and other non-OPEC countries cut the production to raise the oil price only for the US to benefit?

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Just curious, how long have you been paying attention to international oil & gas + its intertwined geopolitics?  It's been a bit of a hobbyhorse with me for a while.

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11 hours ago, joe rubens said:

But this sounds unfair! Why must the OPEC and other non-OPEC countries cut the production to raise the oil price only for the US to benefit?

@joe rubens download the attached old interview in my comment above.  You might find it interesting.

/edit ...  I can't seem to link directly to my comment.  So see attached 2014 interview below.  

MEES Interview with Ali Naimi in Dec 2014.pdf

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1 hour ago, joe rubens said:

But this sounds unfair! Why must the OPEC and other non-OPEC countries cut the production to raise the oil price only for the US to benefit?

Firstly, it can be debated whether a high oil price is to the benefit of the US of A. Secondly, as Tom said the short answer is that American or any Western government for that matter cannot cut production as E&P companies in the West are private companies in a free market economy. The only measure Western governments could use would be to limited future exploration, but this only have a longterm effect. 

 

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24 minutes ago, Rasmus Jorgensen said:

Firstly, it can be debated whether a high oil price is to the benefit of the US of A. Secondly, as Tom said the short answer is that American or any Western government for that matter cannot cut production as E&P companies in the West are private companies in a free market economy. The only measure Western governments could use would be to limited future exploration, but this only have a longterm effect. 

 

Thanks for the save, Rasmus.

 

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(edited)

If the independent US oil producers get together and intentionally try to fix prices by organizing their production up or down I think it is illegal.  They can on their own make a decision.  That said I don't believe US oil companies in the history of oil have ever cut production of wells that are producing.  The cost are in the drilling, distribution, and exploration.  Let me know if I am wrong on this, I am curious to know.  I suppose with Fracking there could be wells closed because it is a much more labor and supply intensive continuous effort throughout the productivity of the well.  If the price of oil got too low, it might not be worth the money.  

Edited by J S
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27 minutes ago, J S said:

I suppose with Fracking there could be wells closed because it is a much more labor and supply intensive continuous effort throughout the productivity of the well.  If the price of oil got too low, it might not be worth the money.  

A lot of those fracking companies aren't viable with their debt load, but they still will keep on pumping, hoping for a better day (although prices are up a bit for a while) but also because those running the show are making money even if the investors aren't. It's part of the reason why when peak demand comes there will be over supply driving the price down.

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Many of the countries in OPEC rely on oil exports to make up a large portion of GDP. If everyone is pumping too much oil gets too cheap and they stand to grow their economies at less than optimal rates. Furthermore, oil reserves are not infinite and depleting them could deter future growth. OPEC trys to maximize growth for its constituents in order to meet demand in the most efficient way. In a perfect world everyone would pump and the perfect price would be realized through equilibrium. This sounds great, but it would require producers to have perfect information in relation to the demand and might force some firms in countries, who are dependent on oil exports, to shut down.

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9 hours ago, ohdogeisme said:

In a perfect world everyone would pump and the perfect price would be realized through equilibrium. This sounds great, but it would require producers to have perfect information in relation to the demand

Assuming people made decision's based on logic.

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27 minutes ago, DA? said:

Assuming people made decision's based on logic.

But they do. They make decisions based on what is economically logic to them. So, US shale companies keep producing because 

1) they need to to keep cash flowing.

2) regardless when anyone says then there is a slow and steady productivity improvement in shale. 

Similar arguments can be made for OPEC producers, renewables etc. All have different realities. 

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2 hours ago, Rasmus Jorgensen said:

But they do. They make decisions based on what is economically logic to them. So, US shale companies keep producing because 

1) they need to to keep cash flowing.

2) regardless when anyone says then there is a slow and steady productivity improvement in shale. 

Similar arguments can be made for OPEC producers, renewables etc. All have different realities. 

Yes it was a general statement about people, including people running businesses. We aren't a very logical animal.

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Excuse me, but the USA does not allow Cartels, Canada does for example the potash industry Capotex ,Thje CAnadianPOTashEXport Cartel.   

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When oil prices get too low, stripper wells are shut in all the time. There are thousands of oil producers in the US and each has to make their own decisions on how to operate in a low cost environment. Sometimes wells are kept operating at a loss to hold a lease, but that doesn't work forever. Some wells are hard to get going again if they've been shut in too long. Paraffin can plug up the tubing, you might have to pump off load water for weeks and gas wells may load up and die. But some owners are very good at operating in low cost environments and plan ahead for it.

There are over 400,000 stripper wells in the US making a little less that 1 million BOPD. If you shut all of them in at once, that might get the attention of some NYMEX traders. But you're also putting thousands of small operators out of work. On the other hand, lots of National Oil Cos use their petroleum industry as a subsidized jobs program. If they lose money, the government takes the loss as long as they want to. Still, there's no one here to help when the market goes really bad. US oil companies don't get government bailouts like the big banks and Detroit automakers. In other words, if you can't handle the ride, stay off the roller coaster.

So yes, the US does shut in some production when needed. It's just not enough to make a dent in the overall supply.

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The Texas Railroad Commission largely set world oil prices from the 1930s through the 1960s by setting production quotas for Texas producers.  As Texas, and US, oil production declined, they lost this power to OPEC, which tried to do the same thing.  Now that US production has increased again, I don't know what the Texas RR Commission is doing as far as production goes, but I don't think it's likely they'll try to limit it.  And then there's Dakota.

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(edited)

1 hour ago, Donald Gill said:

Excuse me, but the USA does not allow Cartels, Canada does for example the potash industry Capotex ,Thje CAnadianPOTashEXport Cartel.   

Meh, it's hard not to control when you own most of the world K reserves and production.  I doubt the USA would just hand it out free-market style if they could flex an advantage. USA is now protectionist yet oddly still consider themselves free-market.

Edited by Enthalpic
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On 11/17/2018 at 3:58 AM, joe rubens said:

I do not understand the following:

When OPEC countries are talking to each other, and with other non-OPEC countries e.g. Russia about an oil production cut, why is US never involved in the talking?

 

On 11/17/2018 at 5:04 AM, joe rubens said:

But this sounds unfair! Why must the OPEC and other non-OPEC countries cut the production to raise the oil price only for the US to benefit?

OPEC is a voluntary collaboration.  If US producers saw a benefit to joining, they would join - assuming it were legal to do so.  As others have pointed out, the US government frowns upon cartels. 

In America, we prefer a system where government stays at a distance, and "fairness" is enforced by ruthless market competition.  Customers are free to buy from whomever they please at the best price they can obtain, and producers are free to sell whatever they want at the price they choose.  Producers with high prices quickly lose market share, which keeps them both honest and innovative.  The net effect is a continuous, frantic effort to provide better quality at lower prices.

You made some mention of limited oil resources, but that's nonsense.  Every time oil prices spiked, the free market response was uncanny.  Fear of that response is what motivated cartels to reign in prices.  So sure, in parts of the world with rigid, authoritarian economies, running out of resources is a serious concern.  In America, however, resource limitations spike prices, and price spikes are the harbingers of innovation.  

I'd be curious to know why you think so little of your country/culture to believe it can't develop alternatives.  

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50 minutes ago, mthebold said:

 

In America, we prefer a system where government stays at a distance, and "fairness" is enforced by ruthless market competition.  Customers are free to buy from whomever they please at the best price they can obtain, and producers are free to sell whatever they want at the price they choose.  Producers with high prices quickly lose market share, which keeps them both honest and innovative.  The net effect is a continuous, frantic effort to provide better quality at lower prices.

Not anymore

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5 hours ago, Enthalpic said:

 Not anymore

Do you mean that the government is increasingly overreaching into the market by popular demand? 

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On 11/19/2018 at 3:48 AM, J S said:

If the independent US oil producers get together and intentionally try to fix prices by organizing their production up or down I think it is illegal.  They can on their own make a decision.  That said I don't believe US oil companies in the history of oil have ever cut production of wells that are producing.  The cost are in the drilling, distribution, and exploration.  Let me know if I am wrong on this, I am curious to know.  I suppose with Fracking there could be wells closed because it is a much more labor and supply intensive continuous effort throughout the productivity of the well.  If the price of oil got too low, it might not be worth the money.  

Pretty much spot on, I'd say.

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Most OPEC members have a national oil company in a monopolistic or dominant role in the country. The government can easily manage the level of production and the national oil company cut or increase the production following the instructions of the oil ministry.

In the US it would be very difficult to implement a political decision to cut the production. The government has a very limited leverage on the independent producers and there is no mechanism to  decide how a production quota would be shared among many independent producers.

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The US producers are also driving the cost of gas down but the cost of diesel up. That light crude from WTI is not suitable for making heavy diesel. They just need to use a little common sense and cut production for now, they have other problems anyway that they could relieve right now by cutting back on what they get out of the wells. Pipeline woes, not enough workers(truck drivers especially) etc. This would be an opportune time to back off 10-15%, let the prices go back up, and take the time to get more trained employees on board. The truck driver thing really bothers me, because you know that they are falsifying logs to even get who they have right now to drive, and if you have ever been out there in West Texas in the oilfields, those guys drive like idiots. 80-90 mph on narrow rough roads with loaded trucks, passing other vehicles like its a race track. I never want to go back out there again and drive. But they will keep at it like morons, and when oil crashes again there will be more folks like me that get out of that business and won't ever go back. You would think that an energy policy that stresses a reliable, consistent supply would be to the benefit of the US, but as usual, our representatives aren't intelligent enough to go in that direction......

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30 minutes ago, SERWIN said:

The US producers are also driving the cost of gas down but the cost of diesel up. That light crude from WTI is not suitable for making heavy diesel. They just need to use a little common sense and cut production for now, they have other problems anyway that they could relieve right now by cutting back on what they get out of the wells. Pipeline woes, not enough workers(truck drivers especially) etc. This would be an opportune time to back off 10-15%, let the prices go back up, and take the time to get more trained employees on board. The truck driver thing really bothers me, because you know that they are falsifying logs to even get who they have right now to drive, and if you have ever been out there in West Texas in the oilfields, those guys drive like idiots. 80-90 mph on narrow rough roads with loaded trucks, passing other vehicles like its a race track. I never want to go back out there again and drive. But they will keep at it like morons, and when oil crashes again there will be more folks like me that get out of that business and won't ever go back. You would think that an energy policy that stresses a reliable, consistent supply would be to the benefit of the US, but as usual, our representatives aren't intelligent enough to go in that direction......

What do those truckers make out there?  I could use a good high paying contract for a year or so and I love to drive big trucks.  Do they provide the truck, fuel and maintenance?  Basic housing included or where are all these guys/gals staying?

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When Congress passed and Barack Obama signed the end of a 40-year ban on selling and exporting domestically-produced oil in 2015 it opened the door for an oil boom that we are experiencing today. Until the boom created a glut in oil and oil rig equipment, much of which is languishing in warehouses unused as demand has fallen worldwide. 

Those rapid developments included more efficient drilling techniques, blockchain inventory and delivery and advanced GIS technology for locating new (and some old) oil sources that have resulted in oil gluts and wild price swings.

Added to the calculus is the fact that alternative energy sources have improved exponentially including higher storage capacity batteries, longer range electric and hybrid vehicles, solar, wind and thermal technology development, an overall drop in younger people driving, a slowing China economy with less demand for coal and reduced consumption of fossil fuels -- put it all together and you have two competing industries, petroleum and electric, vying for control of world energy consumption. 

Unfortunately for the American consumer we are being dragged backwards by the greedheads who are hanging on to "clean" coal and pollution-belching sulfur dioxide created by fossil fuel-generated manufacturing exacerbated by an antediluvian leadership that keeps pouring billions in taxpayer subsidies into a flailing, failing oil-drenced and-coal-immersed mentality that refuses to acknowledge climate change and the global warming consequences produced by greenhouse gases. 

Those gargantuan costs include irreparable damage to our health, to the air we breathe, the water we drink, the crops that are devastated by droughts and floods, coastal erosion due to rising sea surface temperatures and sea levels and a degradation of the environment that all mankind must share. 

Like cotton which was king in the18th century oil became the black gold in the 20th century that drove our economy. But oil is no longer king and the Saudis no longer control the prices or production as they did for nearly a century. Now, oil is slowly and inexorably being replaced by electric and solar power. It's either adapt or perish.    

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