Sorry, Saudi Arabia and Russia , you are wrong to believe you can set the price of oil on global markets.
The U.S. is producing over 13 million barrels a day, 1 million more barrels a day than just one year ago. Saudi Arabia produces about 10 million barrels a day, and Russia is at about 9 million a day. Speculators and investors increasingly ignore the price noise from Saudi Arabia and Russia, the two largest producers of oil after the United States.
GLOOM: CONSUMER SENTIMENT FALLS AND INFLATION EXPECTATIONS RISE
Top line: Saudi Arabia and Russia have lost the war to determine global oil prices. On Wednesday, the Organization of Petroleum Exporting Countries, OPEC, announced that it was delaying its next meeting from this week to next. Oil traders realized that the two countries are now price takers, not price setters. On the announcement that the meeting was being delayed, the price of U.S. West Texas Intermediate fell by almost 5% to under $74 a barrel.
Russia desperately needs funds to fight its war of aggression against Ukraine while keeping its citizens quiescent as the West’s economic sanctions bite. So Russia tries to deceive the oil market and tells Saudi Arabia that it will cut production, but, in truth, just keeps pumping oil. Importantly, oil experts say it costs Russia more than $36 a barrel of oil sold to evade Western sanctions. Russia nets under $46 a barrel. Saudi Arabia, too faces fiscal challenges, requiring $88 oil to balance its generous welfare budget and necessary economic diversification program .
The global price of oil in 2024 will be determined by new supply coming upstream in the Western Hemisphere and by the economic fortunes of China. But China is stuck in the middle-income trap, and its Communist Party Chairman Xi Jinping values internal security and State Owned Enterprises more than economic dynamism. China’s growth rate, and its demand for oil, are slowing dramatically. New oil supply from the U.S., Canada, Guyana, and Brazil will keep global oil prices subdued throughout 2024.
Because of technological advances, U.S. oil production is consistently surprising to the upside. Since 2014, production per foot of drilling has increased by 200% , with most of that improvement coming since 2020. The all-in cost to bring on new production from domestic fields is under $70 . The cost is significantly lower than existing wells where "the last drop" of oil can be extracted through lateral drilling.
Canada is also expected to increase production by up to 500,000 barrels a day in 2024. Production from Guyana is rising dramatically. Just a few years ago, Guyana produced no oil. By 2027, daily production in Guyana will reach 700,000 barrels a day. Brazil, too is ramping production. Its daily output is up to 2.7 million barrels a day, and that production level will increase in 2024. Production from both Guyana and Brazil will increase by 400,000 barrels a day in 2024. Conservatively, non-OPEC production in 2024 will increase by over 1.4 million barrels a day. While global oil demand is projected to increase by just 1 million barrels a day.
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Most importantly, as the price of oil rises, U.S. production will increase. It is all a matter of price. And as the price increases, demand will fall. The market, not Saudi Arabia and Russia, sets the price of oil. Ignore the noise, and focus on the supply and demand data.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.
Saudi Arabia and Russia no longer set global oil prices
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24.11.2023
Sorry, Saudi Arabia and Russia , you are wrong to believe you can set the price of oil on global markets.
The U.S. is producing over 13 million barrels a day, 1 million more barrels a day than just one year ago. Saudi Arabia produces about 10 million barrels a day, and Russia is at about 9 million a day. Speculators and investors increasingly ignore the price noise from Saudi Arabia and Russia, the two largest producers of oil after the United States.
GLOOM: CONSUMER SENTIMENT FALLS AND INFLATION EXPECTATIONS RISE
Top line: Saudi Arabia and Russia have lost the war to determine global oil prices. On Wednesday, the Organization of Petroleum Exporting Countries, OPEC, announced that it was delaying its next meeting from this week to next. Oil traders realized that the two countries are now price takers, not price setters. On the announcement that the meeting was being........
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