Why should OPEC+ Cut Production when U.S. Producers will just produce more?

(edited)

It is pointless for OPEC+ to cut when greedy U.S. Frackers up to their eyeballs in massive debts will only produce more to fill any void left by any OPEC+ cuts hoping to pay their ever increasing debts. U.S. producers are too greedy to stop producing until prices drop so low that they will be forced to stop because they would be losing too much money. This cycle is simply repeated. Oil producers everywhere are all greedy monsters. Russians don't want to cut either. OPEC+ should produce as much as possible to flood the market and force U.S. producers to stop after driving prices down as far as possible. 

Edited by Democrats Tax Everything!
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7 minutes ago, Democrats Tax Everything! said:

It is pointless for OPEC+ to cut when greedy U.S. Frackers up to their eyeballs in massive debts will only produce more to fill any void left by any OPEC+ cuts hoping to pay their ever increasing debts. U.S. producers are too greedy to stop producing until prices drop so low that they will be forced to stop because they would be losing too much money. This cycle is simply repeated. Oil producers everywhere are all greedy monsters. Russians don't want to cut either. OPEC+ should produce as much as possible to flood the market and force U.S. producers to stop after driving prices down as far as possible. 

How low can you go? $10/B?

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17 minutes ago, Democrats Tax Everything! said:

It is pointless for OPEC+ to cut when greedy U.S. Frackers up to their eyeballs in massive debts will only produce more to fill any void left by any OPEC+ cuts hoping to pay their ever increasing debts. U.S. producers are too greedy to stop producing until prices drop so low that they will be forced to stop because they would be losing too much money. This cycle is simply repeated. Oil producers everywhere are all greedy monsters. Russians don't want to cut either. OPEC+ should produce as much as possible to flood the market and force U.S. producers to stop after driving prices down as far as possible. 

and when you say greedy US frackers you mean frackers trying to make money, who are legally forbidden to conspire with each other to taper production and taper production alone would surely mean their demise.

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I don't think U.S. frackers will shut in production unless price is below their wells' operating cost. If their break-even for D&C is, say, $50/BO and LOE is, say, $20/BO, I doubt that will shut in if it's above $20 even though they will never achieve payback on D&C.

E&P is a pretty crazy business, actually, lol.

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(edited)

1 hour ago, Democrats Tax Everything! said:

OPEC+ should produce as much as possible to flood the market and force U.S. producers to stop after driving prices down as far as possible. 

They tried this already, it didn't work. https://www.ft.com/content/afcf2658-0b5b-11e5-994d-00144feabdc0 Summer of 2014 was $100 oil, fall of 2014 was $65,  then they start to blink, their not so sure in their plan,,, they change course, cut production, but there is a lag in the results.  https://www.cnbc.com/2016/11/30/opec-reportedly-reaches-agreement-to-cut-oil-production.html

They are not the big swing supplier they once were.

 

 

Edited by Mike Marcellus
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17 minutes ago, Mike Marcellus said:

They tried this already, it didn't work. https://www.ft.com/content/afcf2658-0b5b-11e5-994d-00144feabdc0 Summer of 2014 was $100 oil, fall of 2014 was $65,  then they start to blink, their not so sure in their plan,,, they change course, cut production, but there is a lag in the results.  https://www.cnbc.com/2016/11/30/opec-reportedly-reaches-agreement-to-cut-oil-production.html

They are not the big swing supplier they once were.

 

 

You say, "They are not the big swing supplier they once were.". We see that differently. The 30 million barrels a day that they have been supplying for the past twenty years is a very significant chunk of the world's production. How would you make up that quantity of oil, Mike?

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39 minutes ago, William Edwards said:

You say, "They are not the big swing supplier they once were.". We see that differently. The 30 million barrels a day that they have been supplying for the past twenty years is a very significant chunk of the world's production. How would you make up that quantity of oil, Mike?

They're still the big dog on the block. If they're not,why is the US not called on to stabilize the market?  Answer: we can't, we don't have the capability.

 

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55 minutes ago, William Edwards said:

How would you make up that quantity of oil, Mike?

I don't have an answer for that, sir.  I'm focusing on production cuts, not opening the taps.

What Im saying is the cohesiveness of opec is not what it once was.  They used to be in line with one another. Now it seems they are not as effective as they once were.  I will point to their new relationship with Russia.  Why?  Why would opec include anyone else into their club,,,, because they need them.  And this I surmise is the beginning of the end of opec.  Honor among these thieves lasted waaay longer than predicted.  

 

 

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1 minute ago, Mike Marcellus said:

I don't have an answer for that, sir.  I'm focusing on production cuts, not opening the taps.

What Im saying is the cohesiveness of opec is not what it once was.  They used to be in line with one another. Now it seems they are not as effective as they once were.  I will point to their new relationship with Russia.  Why?  Why would opec include anyone else into their club,,,, because they need them.  And this I surmise is the beginning of the end of opec.  Honor among these thieves lasted waaay longer than predicted.  

 

 

I was personally trying to assist OPEC in restoring price from the drop resulting from trying to combat oversupply in 1985 -- thirty years ago. I see little difference now versus then in OPEC's situation and attitude. Supplying 30% of the world's oil gives a degree of permanence to that group.

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@William Edwards I won't pretend that I have your experience.  And I will agree 30% supply of any market is enough to manipulate the market.  But do you really feel opec acts as a single entity?  I feel that there is nothing but contempt for the top producers coming from the bottom producers.  Why doesn't Opec help Venezuela?   ... I fell it's because they couldn't care less.  They are business partners that were established two generations ago.  Does my example of Russia now being invited to the party hold any significance in your opinion?

 I would like to ask this,,, How did the production cuts go in 1985?  and is it just as easy to do today 30 years later?

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36 minutes ago, Mike Marcellus said:

@William Edwards I won't pretend that I have your experience.  And I will agree 30% supply of any market is enough to manipulate the market.  But do you really feel opec acts as a single entity?  I feel that there is nothing but contempt for the top producers coming from the bottom producers.  Why doesn't Opec help Venezuela?   ... I fell it's because they couldn't care less.  They are business partners that were established two generations ago.  Does my example of Russia now being invited to the party hold any significance in your opinion?

 I would like to ask this,,, How did the production cuts go in 1985?  and is it just as easy to do today 30 years later?

Let me answer your last question first, Mike. They spent fifteen years trying to cut production based upon agreed-to quotas before prices got so low -- $10/B -- that they abandoned the "you cut" mentality and got serious about cooperating and guessing correctly how much they needed to cut. We are two or three years into this time's cycle. I suspect it will be a repeat of the situation thirty years ago. That means we have a dozen years more of distressed prices.

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Please, I really am anxious for your answer to why won't opec nations help Venezuela with some infrastructure help?  some management help?  I say, because they don't care about there business partner.  In fact I would further guess they would rather Venezuela's oil just stayed in the ground, making theirs that more scarce and valuable.    What are the benefits for the "junior" members?

I am being stubborn, I know, but please know that I am not arguing to argue. I'm just picking your brain so-to-speak.

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I don't know that OPEC has contempt for Venezuela. in fact, I think Venezuela made out from the deal as good as could possibly be expected. they didn't actually have to sacrifice any production; their production was already falling and Venezuela got everybody else in OPEC on board for a production cut and now it is reaping the higher prices of its lowered production which was always going to be lower anyway. 

I think the term swing producer gets thrown around a little loosely. and I'm not sure it's quite as black and white as saying OPEC is working as a single entity or as multiple entities. I think first that they think of themselves and then second they try to collectively work together in order to help themselves. I don't think any of them have wonderful motives or that they have another country's best interest at heart. 

I think it is important however to not be stuck in a rut of thinking that everything is like it used to be. Lots of things are different today. the United States is now a huge producer. This changes the game but it doesn't necessarily take all of Opec's power away. It just means now they need Russia too.

This is evidenced by spot prices that jump up and down depending on what OPEC even just  leaks into the marketplace on a daily basis.

I do feel however that there are some outliers within OPEC that I would not call one of the cool kids. Iran of course is odd man out. but they still hold a significant amount of sway. Iraq too which only has government control over part of its oil, and therefore cannot comply with the agreement completely. 

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4 minutes ago, Rodent said:

I think it is important however to not be stuck in a rut of thinking that everything is like it used to be. Lots of things are different today. the United States is now a huge producer. This changes the game but it doesn't necessarily take all of Opec's power away. It just means now they need Russia too.

That makes sense

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13 minutes ago, Tom Kirkman said:

MEES Interview with Ali Naimi in Dec 2014.pdf

Thanks Tom

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14 minutes ago, Tom Kirkman said:

If Al Naimi had been allowed to hang around, things would probably be quite different. He was thinking long the term -- decades -- while MBS is thinking next week. But from what I have seen, neither one actually understands the business of oil. So volatility and uncertainty would prevail with either leader. In their dictionary, stability means "high price", not "constant price". But the laws of physics and finances prevent the producer from setting both price and consumption. He has to make  a choice.

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2 hours ago, Tom Kirkman said:

fascinating interview. I've seen bits and pieces quoted but I'm not sure I've ever read it in its entirety. @Mike Marcellus what Ali Naimi had to say about Venezuela may make me rethink a few things. 

 

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1 minute ago, Rodent said:

this old article from 2011 has some interesting bits about the different countries' pricing strategy.

https://www.reuters.com/article/us-opec/opec-ready-to-act-if-needed-split-was-over-data-idUSTRE7582C620110609

@William Edwards  knows firsthand more about OPEC's historical pricing and supply machinations than probably anyone else reading or lurking on this forum.  If you nicely ask William an intelligent question, he will likely respond.  You may not agree with what he says.  But simply ignoring his perspective is probably unwise. 

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45 minutes ago, Tom Kirkman said:

@William Edwards  knows firsthand more about OPEC's historical pricing and supply machinations than probably anyone else reading or lurking on this forum.  If you nicely ask William an intelligent question, he will likely respond.  You may not agree with what he says.  But simply ignoring his perspective is probably unwise. 

You are simply a smooth-talking devil, Tom.

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31 minutes ago, William Edwards said:

You are simply a smooth-talking devil, Tom.

Heh heh, but it's true what I said, William.  I could say similar things about @Mike Shellman  experience in U.S. stripper wells.  He's been hands on in stripper wells his entire life, and probably has forgotten more about oil than I know about oil.

Since you were nose to the grindstone with OPEC deliberations decades ago, it would be foolish for me to ignore your views.  You are well aware that we don't agree on a number of issues, but that doesn't mean I am foolish enough to ignore your views on issues we disagree about. 

The world would be pretty darn boring if we all agreed on everything. 

It's easy to get distracted by totally useless information.  Like this:

fecbd5a057cb646709d20ea0d9f79fabc99eb42806911888aa423e0bb332c649.png

 

Seems better to me to pay attention to the bigger picture, rather than get distracted by the MSM disinformation News Du Jour shiny objects about oil & gas short term fluctuations.

 

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4 hours ago, Tom Kirkman said:

Heh heh, but it's true what I said, William.  I could say similar things about @Mike Shellman  experience in U.S. stripper wells.  He's been hands on in stripper wells his entire life, and probably has forgotten more about oil than I know about oil.

Since you were nose to the grindstone with OPEC deliberations decades ago, it would be foolish for me to ignore your views.  You are well aware that we don't agree on a number of issues, but that doesn't mean I am foolish enough to ignore your views on issues we disagree about. 

The world would be pretty darn boring if we all agreed on everything. 

It's easy to get distracted by totally useless information.  Like this:

fecbd5a057cb646709d20ea0d9f79fabc99eb42806911888aa423e0bb332c649.png

 

Seems better to me to pay attention to the bigger picture, rather than get distracted by the MSM disinformation News Du Jour shiny objects about oil & gas short term fluctuations.

 

I agree.

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(edited)

Tom, I must now agree wholeheartedly with our friend, William; you are a very smart man. Thank you. Please remember something about stripper well operators; we are generally small, family oriented shops that can take the prospect, or project, from start to finish entirely on our own. I do my own geology, my own land work, design and engineer my own wells and then manage those wells for decades, all to the benefit of hundreds of mineral owners, compliance with regulatory agencies...everything. Whatever the big boys do, we do the same thing, only a little shallower, and a lot smarter. Then I get to standby, with my hands tied, while OPEC on one side, my illustrious President and the US shale oil industry on the other, manipulate my product prices at will. Its incredibly difficult. And one last thing about stripper well operators...if you want to know if a well, covey of wells, a field, a resource play, whatever, is economic, ask a stripper well operator. We deal with real dollars, our own dollars, and know what's profitable and what's not. I've had the US shale oil phenomena pegged for the past eight years. Its a loser.

I get the heebie jeebies when folks, mostly my own industry, now dismiss OPEC as no longer being a significant factor in world oil markets. It is, of course, as William points out, and will continue to be. There are lots of smart people in the Middle East, with computers, and OPEC understands the shale oil thing in America very well. It knows the shale phenomena is totally credit/debt dependent and all about its enormous decline rates, water and infrastructure woes. OPEC is forced to deal with all this at the moment but, I believe, knows US LTO is in a very financially precarious place and is only a threat to world oil markets as long as America is so ignorantly willing to fund it with low interest monetary stimulus. 

How bad is shale oil debt? Public and private upstream shale oil debt totals something in the order of $3000B, about the same as the total national debts of Russia and Saudi Arabia combined. https://www.oilystuffblog.com/single-post/2018/11/28/Cartoon-Of-the-Week 

011.jpg

Edited by Mike Shellman
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12 hours ago, Tom Kirkman said:

@William Edwards  knows firsthand more about OPEC's historical pricing and supply machinations than probably anyone else reading or lurking on this forum.  If you nicely ask William an intelligent question, he will likely respond.  You may not agree with what he says.  But simply ignoring his perspective is probably unwise. 

Of all the possible oil topics, this is by far the most exciting to discuss (for me). And yes, firsthand knowledge is invaluable, whether it's OPEC or US shale. 

Keep going! 

The comments from that interview above about Russia's aging wells was interesting. Are they in a position to restrict oil production again? 

 

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