
The World's Cheapest Oil Is Already Close to $20 - e15ctr0n
http://www.bloomberg.com/news/articles/2015-12-14/never-mind-35-the-world-s-cheapest-oil-is-already-close-to-20
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diafygi
Call me crazy, but I think there's something else going on here. What if Saudi
Arabia is having a fire sale?

There's a ton of science that says that we can only pull up half of our
current oil reserves to cap climate change at 3 degrees (2 degrees isn't even
feasible)[1][2]. That combined with the political and economic tides starting
to shift in favor of renewables/nuclear and electric vehicles[3], peak carbon
is starting to look like it will happen around 2020 (only 5 years away)[4].

So, if the world will only pull up half of what it already has in reserves,
it's a great strategy for Saudi to drive down price and try to make sure most
of that half is from their pool. I'm in renewables, and there's a common
question we always ask: will oil die at a high price or a low price? It looks
like it's going to be a low price.

[1]: [http://www.carbontracker.org/report/wasted-capital-and-
stran...](http://www.carbontracker.org/report/wasted-capital-and-stranded-
assets/)

[2]:
[https://en.wikipedia.org/wiki/Carbon_bubble](https://en.wikipedia.org/wiki/Carbon_bubble)

[3]: [http://www.npr.org/sections/thetwo-
way/2015/12/12/459464621/...](http://www.npr.org/sections/thetwo-
way/2015/12/12/459464621/final-draft-of-world-climate-agreement-goes-to-a-
vote-in-paris-saturday)

[4]:
[https://www.iea.org/newsroomandevents/pressreleases/2015/jun...](https://www.iea.org/newsroomandevents/pressreleases/2015/june/iea-
sets-out-pillars-for-success-at-cop21.html)

~~~
tristanj
This does not match any of the Saudi press statements on the oil situation.
The Saudi position and their motivations have been consistent for months with
thousands of articles documenting this. In summary, publicly, they are not
reducing oil output because in the previous oil crisis, they cut production
and suffered heavily vs those who did not. The private reason they are still
pumping is that they intend to bankrupt/destroy the US Shale industry. They've
done an excellent job at this. These articles with inside information never
mention "climate change" or "renewables" as the reason for the situation.

Unless you can show sources showing the price change is because of climate
change, this just a delusional conspiracy theory.

~~~
tomp
Why would you assume a market actor is being straightforward about their
strategy, especially if others being aware of this strategy would put them at
a disadvantage? Deception is a competitive strategy!

~~~
tristanj
I never made this assumption.

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melted
Last time oil dropped so abruptly the Soviet Union fell apart. I wonder what
will happen this time.

~~~
simonh
Russia is still looking very vulnerable in that respect. Rosneft's heavy debt
burden combined with high inflation in Russia (probably 15% for 2015) is
hammering their ability to invest in expanding capacity. Reduced investment
also means costs of production are on an upward trend. Then add in the Saudi's
moves to increase market share in Northern Europe and it's not looking too
good.

~~~
danieltillett
Do you think Russia is going to break before Venezuela? I would not ever want
to bet against how stoic the Russians can be.

~~~
_Codemonkeyism
The socialst government of Venezuela already 'broke' and was voted out in
favor of conservatives, due to various reasons, one of them that the
socialists could no longer pay for everything with petro dollars.

What more would you assume "break" means for Venezuela?

Russia's government is still in place.

~~~
danieltillett
We will see what all the voting amounts too in practice in Venezuela. Even if
it does mean a change in government and policy there is not much they can do
given their financial situation.

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seren
I have no idea how it can be sustainable, the low prices have frozen all
investment on new fields/fracking/exploration, and when we will have a
production slump in a few years, it will be followed by a sharp rise, that
will be really painful.

~~~
danieltillett
That is the Saudi plan - knock out the frackers and renewables then jack up
the price. Let's hope they don't succeed. They are racking up a lot of debt
right now trying to keep a lid on their population problems so they might find
their ability to borrow breaks first.

~~~
simonh
Completely agree, to be honest their current strategy is probably the right
way to go but that's just because the alternative strategies are even worse.
The problem with knocking out fracking is that the frackers can ramp
production back up again fairly quickly. Also because the frackers aren't a
state run operation and aren't a systemic risk to the Us economy, if the
current fracking companies go bust the damage is contained to those companies
shareholders. In fact that's largely already happened. Other companies and
investors will just move in, take over their operations at a market adjusted
discount, and be ready to start producing again when the conditions are right.
This will likely put a much lower long term cap on the oil price than we've
seen in the past.

~~~
danieltillett
The history of the airline industry would suggest you are right. A long term
low oil price is not very compatible with intent of the Paris accord though.

~~~
matt4077
According to a friend who works in politics & energy, the general consensus is
that almost all oil will eventually be used. The real battle is over coal, and
wether the world will manage to leave some of it in the ground.

~~~
danieltillett
Oils ain't oils these days. Fracking and oil sands have broken down the
division between what is oil and what is not. God help us if we get close to
burning even half the coal.

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cdnsteve
It's nothing more than a market share grab. They're simply bullying
competitors out of the market. They have deep pockets and it's an ideal time
to strike. So they take a calculated loss for the next 2 even 3 years and they
gain more market share.... the costs will rise again and so will their payoff.

------
iLoch
What does ISIS charge? I can't imagine they're in a position to charge much.
Then again, I know nothing.

~~~
joakleaf
There is a Planet Money podcast about the financials of ISIS. They did talk
about how the oil is exported, but I don't remember if it included a specific
price point.

[http://www.npr.org/sections/money/2015/12/04/458524627/episo...](http://www.npr.org/sections/money/2015/12/04/458524627/episode-667-auditing-
isis)

~~~
dagw
They never mentioned a pr. barrel price, but they did say the experts where
surprised at how little money they where making given how much oil they where
selling.

