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Major decline in oil prices in Oct. 2014 as prices drop to $81 per barrel and are forecast to reach $70. U.S. oil production increased by about 56% or 3.1 million barrels a day since 2004. U.S. demand for gas and fuel declined 8% compared to 2004. Initially instability and wars in the Middle East sustained high oil prices in 2012-2013. Yet with growing output from shale and other sources in N. America and slowing economies of Europe and China, the situation reached a point in 2014 where supply exceeds demand. This shift more than offsets any instability in trouble spots. The situation affects the U.S. consumer favorably with an estimate of $1 billion in savings for American consumers with every one cent drop in price at the gas pump, by one estimate from Deutsche Bank analysts. Typical American families gained an extra $50 a month from the decline June to October 2014, according to analysts at Gasbuddy.com. The declines are a boost for the slowing economies of Europe, Japan, China, S, Korea and India. China's imports for 2015 are estimated at 61% of oil consumption, using official estimates. In the current slowdown the lower prices offer relief. India which imports 75% of its energy benefits signficantly, as this helps lower inflation and reduces cost of fuel subsidies for state run companies. Russia is adversely affected by the declines as it depends on oil and gas exports for 50% of the nation's budget. Estimates by AFK Sistema economists show the Russian economy contracting in 2015 with oil at near $90 per barrel (Brent crude is at about $85, and WTI at $81 in early Oct. 2014). Russia's former Finance Minister Alexei Kudrin reflects opinion among Russian executives and politicians, when he told state television that Saudi Arabia may be pushing prices lower to target Russia's oil resource based economy and Mr. Putin, in an effort to broaden the effect of sanctions. (The Saudis have strongly protested the Putin intervention in Syria.) Venezuela has used $120 per barrel and Angola $98 for its budget, leading to a strong hit for the economy. ...

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Prince Salman's efforts to launch an IPO of Saudi Arabian National Oil Company faces resistance from Saudi bureaucrats. Prince Salman wants to reduce the country's dependence on oil revenue, and hoped to use the IPO generated $100 billion to make investments in other industries. Saudi technocrats see risks in the plan- as costing consumers billions of dollars in higher gasoline prices, legal risks and public scrutiny. The IPO has been pushed back to 2021. Large new investments such as solar generation hub also face passive resistance in the bureaucracy. New investments policies have led to a Saudi recession in 2017, and reduced investment and consumer spending. Prince Salman sees it differently, once telling Theresa May of Britain that even if he got 50 of the 100 things he wanted done, that would be 50 not done otherwise. Salman has a disdain for the bureaucracy and has tight control over the country. He has led popular social changes such as letting women drive and taking away the power of religious police to make arrests. The Economy Minister has slowed down a plan to sell state assets such as government owned hospitals,airports, because conditions are not ideal. A plan to invest $7 billion in Uber was shelved. Aramco chairman Mr. Falih has reduced the size of investmetns including for the solar energy generation project. A plan to have ARAMCO listed on the New York Stock Exchange preferred by Prince Salman has been changed with advisers suggesting the London Stock Exchange as a place with lower risks of law suits under U.S. tort laws. Saudi executives at ARAMCO also pointed out that to reach the $2 trillion valuation that the Prince has in mind for ARAMCO the company would have to sell gasoline to Saudis at market rates, tripling oil prices in the kingdom -costing consumers $98 billion. The advisers believe it is more prudent financially to raise debt. Under that plan ARAMCO could raise debt to buy the Public Investment Fund's (PIF) 70% stake in state owned chemicals company Saudi Basic Industries Corp. which would infuse PIF with $70 billion, almost as much as generated by a IPO for ARAMCO. On solar energy Mr. Falih lowered the plan from 1500 gigawatts to 200 at a cost of $200 billion. Under a new plan this is at 60 gigawatts from solar and wind with 70% produced by the Public Investment Fund, the state's investment fund.   ...

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Saudi Arabia continued to follow a policy of high oil production in 2016, and reported that it produced 10.67 million barrels a day in July 2016. Iran is producing at a pre-sanction level of 4 million barrels a day. 2017 oil demand prediction by OPEC is at growth of 1.15 million barrels a day. Experts says that the interests of Iran and the Saudis may be converging to reduce production as they face low oil prices. Iran needs to make large investments and Saudis face budget cuts with low oil prices. They point to this cooperation being temporary as there are issues of competing politics in the region, and beyond that both countries seek to expand their market share.

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Lower volatility in oil prices as a result of a new stream of shale oil supplies at competitive prices is good for oil producers and for consumers. This report in the WSJ shows that volatility and swings in oil prices have gone down with the ability of shale producers to respond to price signals or geopolitical situations and increase supplies. Shale producers can increase supplies in months compared to the years it would take for oil producers in offshore drilling. The new technologies in shale rigs have tripled production since 2011 for the same number of rigs operating in the U.S. Permian Basin from West Texas to New Mexico. The core producers can now supply and be profitable at $40 a barrel.  Supply cuts from OPEC and Russia as currently the policy of both countries mean inventories do not rise too high. And geopolitical problems such as Yemeni attacks on Saudi oil facilities, the reinstated sanctions on Iran by the Trump administration that reduce oil supplies, Venezuela's problems, can be met by increased supplies from the U.S. shale industry in a short time to prevent inventories from dropping too much.      ...

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Saudi Arabia needs current oil price of $60 a barrel to move up to $80 a barrel to balance its national budget. To do this OPEC needs to coordinate its oil production cuts with a group of 10 countries led by Russia that includes Mexico. These countries include countries in the former Soviet Union.  In December cuts of 1.2 million barrels a day were coordinated between the 2 groups to push up oil prices. Now the OPEC cartel plans regular meetings with the Russian led group to push up oil prices. Under a draft document an alliance between the 2 groups would last 3 years and include regular meetings. Earlier Prince Salman led Saudi government proposed replacing OPEC with a new group combining Russia and Saudi Arabia and the other countries in OPEC, yet giving most of the decision making power to Russia and Saudis. This was rejected by Russia and was received poorly by Iraq, Iran  Nigeria, Angola, Algeria. The Iraqis reminded Saudis that OPEC was started in Baghdad. ...

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Gregory White and Anton Troianovski provide this exceptional account of how Russian president Putin miscalculated all through 2013 and 2014 about the way Germany and the EU would respond to Russia's actions in Ukraine. Putin also according to other accounts miscalculated how Saudi Arabia and OPEC nations would act on maintaining oil production in the middle of a slowdown in the economies of Asia and Europe. A combination of events beyond his control such as the economic slowdown in the second half of 2014, with the miscalculations on OPEC price moves particularly following Russia's failed Syrian intervention disrupting Saudi-Russian relations, caused the damage. Major miscalculations were made about German cooperation in the face of Putin's moves- the changed convictions of German chancellor Merkel about Russian intentions following repeated Ukraine interventions, and changes in German public opinion following the downing of a Malaysian airliner flight in which many Dutch citizens lost their lives. Putin used subterfuge to coverup his actions making his story line less credible with Germans with each repetition. The result of these miscalculations and lost confidence in Russia's economy and policymaking is that the Ruble dropped to 62 to the dollar, losing nearly half its value in 2014, and a deep recession expected in 2015. Even though Russian takeover in Crimea enjoys support and Putin still has widespread support for nationalist policy with a tightly controlled media, many officials in the government and business leaders warned about the dangers for Russia's economy in 2014. Former finance minister Kudrin, and the head of Sberbank, who were principal architects for Russian finances and economic policy reforms, were clear about the dangers. Only by Nov- Dec 2014 were their voices being heard. ...

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Pakistan's foreign exchange reserves dropped to $2.9 billion in February 2023, says this report in the WSJ, enough to cover 2 weeks of imports and a fraction of debt servicing requirements. Under an IMF agreement that is being negotiated $1.1 billion will be given by the IMF, which would lead to further lending by other countries and banks based on IMF oversight. This includes putting $630 million in  additional taxes and increasing the price of electricity. Successive governments have decided to avoid the IMF conditions of increasing taxes and price of electricity. Donor countries such as Saudis and Qatar, UAE, would step in once IMF oversight is in place and invest in airports, power plants, oil and gas companies, and make loans to Pakistan once the IMF oversight is in place, says WSJ.   Sri Lanka faced a similar situation after it delayed an IMF program and loan, leading to financial crisis. The situation is now stabilized with the IMF on the verge of making a $2.9 billion loan and other banks making loans on the basis of IMF oversight. In Sri Lanka's case India is a serious donor, investor and supporter of Sri Lankan recovery. ...

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Cook and Olson look at how U.S. shale oil firms have handled the slump in oil prices. Their report in WSJ says the shale firms have weathered the oil slump well, with production declines in 2016 of only 535,000 barrels a day compared to 2015. The Saudi decision to not cut production and let oil prices drop has affected mostly higher cost less flexible production for mega projects such as deep water projects and oil sands in Canada. Oil shale firms are expected to snap back, according to experts, as demand increases. U.S. production is expected to increase by about 700,000 barrels a day by end of of 2017, say experts.

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There is a mixed picture behind the drop in investment in new oil exploration. The IEA estimates that overall investment will be down 15-20% in 2009. The number of drilling rigs in use globally fell 32% in the year to April 2009, to 2055, according to Baker-Hughes, an oilfield services firm. In America the number of rigs in use is down by 50%, and OPEC countries are cancelling 35 big projects, according to the OPEC secretary general, Salem Al-Badri. Cambridge Energy Associates estimates that 5.5 million barrels a day of capacity additions may not take place in the next couple of years, which is a third of expected net increase by 2014. Examine this a bit more closely and you find that the oil majors despite lack of access to oil in inhospitable terrain or foreign countries, are still holding up well in investment. Exxon increased capital spending by 5% in the 1st quarter 2009, and Shell and Chevron plan to invest the same in 2009 as in 2008, $31 billion and $23 billion. BP plans to go from $21 billion to $20 billion. Canadian Tar Sands investments are being reevaluated in the light of prices, and smaller companies like Devon Energy are cutting back, for Devon from $9 billion in 2008 to $4 billion in 2009. From the national oil companies the investments are holding up in Saudi Arabia, whereas they are faltering in Russia and cash strapped Venezuela. Saudi Aramco recently completed a 5 year project increasing capacity from 10m b/d to 12.5 b/d at cost of $70 billion. And another $60 billion is set aside for more investments which will be less vigorously pursued as Saudis have 4.5m b/d of idle capacity after production cutbacks by OPEC. Petrobras plans to increase its investment by 55% to $174 billion in the next 5 years in offshore discoveries challenged by deep waters and thick layers of salt. The oilfield services companies like Schlumberger are cutting back, with Schlumberger cutting investment in 2009 by 13% to $2.6 billion and shedding 5000 jobs. Baker Hughes shed 3000 jobs. Mature fields are also receiving less investment, so that the drop from mature fields will be 9.4% according to IEA instead of 7.7% projected earlier with larger investments. The picture described above shows investments by the Saudis, the majors, oil field services firms, investments in recovery improvements in mature fields, not in a precipitious decline. The picture is of cautious and careful investment and some pullbacks as the economies of the US suffered decline in GDP of 6% in the 1st quarter 2009 over prior year and the German and Japanese economies suffered decline of 15-16%. Even the most optimistic forecasts for China do not go above 8% for 2009. In the light of these growth estimates the moderate drop in investments in new oil exploration may match the moderation in growth in Asia and the drop in growth in the USA and Europe and Japan. The forecasts of steeply higher oil prices or spikes like those in 2007-2008 are based on the notion of a quick economic recovery. See the links to economic recovery on this. These links suggest that the current surge may not last as the basics for a recovery are weak. In the US foreclosures, toxic assets, housing, consumption and savings, and unemployment all indicate a weak economy for several years down the road. And it is this weakness that the oil investment exploration budgets may be responding to in amoderated manner. The latest sign of this weakness is the spread of foreclosures to prime borrowers with job losses, link NYT May 24, 2009. The Saudi king thinks that $75 is a fair price for oil. Current prices have taken oil to $60 a barrel, even as inventories remain strong with over 60 days of supply. No spikes like those in the past are realistic in this economic environment....

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Russians vote in 2021 parliamentary elections. With 30% of votes cast the United Russia party of Mr. Putin wins 45% of votes cast, followed by the Communist party of the Russian Federation with 22%, and the Liberal Democratic party getting 8%. Russia has mixed voting system with half the seats directly elected from party lists, and the other half assigned to individual candidates. United Russia had 334 seats out of total 450 seats in the outgoing parliament. Putin will need over 300 seats in the new parliament to get the two thirds majority to enact changes to the constitution. Putin needs this to extend his current term which ends in 2024.  Putin draws most of his support from the older part of the population that has seen the hardships imposed following the collapse of Communism around 1990. This led to collapse of the ruble currency, increase in poverty, an effort by oligarchs to capture state enterprises, and a chaotic period for law and order. Shockingly during that period even life spans of Russians declined as reported in the WSJ. Liberals who supported the shift to democracy had not anticipated all the ill effects of introducing capitalist free market systems in such a sudden and free fall way. Such sudden shifts to free markets are now better understood and seen as the wrong way, as western capital markets fail without inbuilt protections, safety net for workers and retired people, and are subject to serious distortions if no vigilant authority exists. This is in reality not a free market but a market captured by the few, in the interests of the few. Once this was clear retired people, pensioners, military, law enforcement, and liberals realizing what had happened shifted support to United Russia founded by Mr. Putin. Mr. Putin faces the typical situation faced by incumbents over long periods where there is a sense of the need for change. Yet the pandemic and other economic crises that could happen in the event of mismanaged economy are never really too distant for countries such as Russia, China, India that are developed but yet have not the strong industrial base of US, Germany, France. Such economic crises including the ruble currency and Russian energy companies were better managed under Putin than under the chaotic period following the collapse of communism and the introduction of so called "free markets" that were anything but. During the recentfree fall in oil prices Putin was able to manage a transition period with the help of president Trump who negotiated a price for oil with the Saudis to protect US shale oil workers and companies, as well as Russian workers and oil companies. As a result Russians particularly young people look for alternative places to vote for opposition parties such as Liberals, Communist party, and other parties. But the majority of Russians including those working for state energy and other state companies tend to stay with Putin's choices for state, regional and federal administration and for parliament. Nationalist spirit also provides additional support as Putin has restored Russia's status as one of the important nations in the world. Some missteps such as interference in US elections have led to a loss of some of this international influence, yet even president Biden understands the situation in Russia and is willing to work with Putin with new rules of conduct Under the Russian system about 70% of the laws are not made by parliament but are done by the government and the administration of the president and then go through parliament. In addition to parliamentary vote there are 6 governor races and three races for heads of regional republics. ...

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With 9.5 million barrels a day cut for U.S. G20 and OPEC+ negotiated by president Trump many Texas oil wells will be shut in. Even with these cuts price is sensitive after dropping to $22 by April 12, 2020. The cuts averted a complete collapse in oil prices when markets opened on April 13. By April 12 oil demand worldwide had fallen by 30 million barrels a day. That is how grave the situation was. By doing so the U.S. protected its oil industry. There was complete lack of leadership from Russia, Saudis, Mexico and other countries until president Trump intervened with strong action. Trump threatened tariffs on imported oil to protect the U.S. oil industry if other nations did not come to terms, including calls from U.S. senators telling prince Abdulaziz the Saudi oil minister the U.S. Saudi relationship could not be salvaged if the Saudis did not come to an agreement. Once again president Trump's tariff moves worked, this time to save the world oil industry and oil producing economies such as Russia from severe hardship. ...

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Decline in capital investment in 2016-2017 expected at Lukoil and Rosneft as the Russian government postponed a reduction in taxes on oil exports for 2016. Russia is dependent on oil exports for a third of its national output, and about half of its budget depends on oil revenues, a major weakness, but this is being managed carefully till oil prices recover. Russian officials say the $50 a barrel assumption for oil revenues in 2016 in the budget is optimistic. Yet Russian output decline is expected to be limited to about 3% a year from 5% for Lukoil in future years from decline in investment, because of drilling new wells and use of horizontal drilling technology on older fields. In 2015 oil output increased modestly to 10.73 barrels a day from 10.58 barrels a day in 2014. Russia's oil industry benefits from a tax system that favors the industry. The export duty on oil and the mineral extraction tax are based on price. A declining ruble which has gone from 35 to the dollar before its invasion of Ukraine in 2014 to 86 to the dollar in Jan 2016, has a favorable impact. This actually helps the industry because workers and oil equipment suppliers in Russia are paid in rubles, and oil revenues are earned in dollars. As a result new technologies such as horizontal drilling now make up one third of oil supplies from 11% in 2010. Chinese suppliers also provide new technology drilling equipment, as China is not part of the sanctions. Gazprom Neft's CEO Dyukov says it can make a profit at oil price of $15 a barrel. Because of the tax system after tax revenues are stable at the oil companies in Russia, even as government tax revenue declines. All this points to resilience in the short run for the Russian oil industry. The decline in the value of the ruble is seen as an opportunity to shift away from an overdependence on imports during the period of high oil prices. Alexei Kudrin, former Russsian finance minister, sees growth returning for the Russian economy in 2017. This may actually be good news for the struggling economies of U.S., Europe, India, China, and other countries which would be boosted by low oil prices sustained over a longer period- something made possible by competition between big oil producing countries Russia, Saudi Arabia, Iraq and Iran, and the profitability of oil production at prices below $30 to $20 a barrel....

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Oil prices in the U.S. drop to $55 a barrel on the New York Mercantile Exchange, and $65 a barrel for Brent crude price. Earlier expectation of the impact of reimposed sanctions on Iranian oil shrinking global oil supplies have been reversed with increased production from Saudi Arabia, Russia and the U.S.

Another new development that caused this reversal in sentiment is that the Trump administration granted waivers to some buyers of Iranian crude oil. The U.S. trade dispute with China has also added to this with lower growth forecasts. Unlike in previous years OPEC or Saudi Arabia cannot by itself shrink global supplies with production cuts. The U.S. and Russian output also plays a significant part.

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Technology is reshaping the world of oil by 2018. The U.S. Permian Basin stretching from West Texas to New Mexico now produces more oil than the UAE and is likely to soon surpass Iran- production is at 3.1 million barrels a a day. There are as many rigs as in 2011 yet the production has tripled because of the use of high tech rigs that can move quickly to new locations over wide areas and with tech that can see hundreds of feet into the rock. By 2019 the U.S. will surpass Russia as the world's largest producer of oil. The drop in oil prices to about $40 a barrel in recent years is a result of Saudi efforts to block shale oil development by lowering prices. This has not worked. Initially some high cost producers exited the industry and the shale industry suffered. Over time the new technologies spurred by lower oil prices have led to the anticipated drop in cost. Shale oil can now be produced by core producers at $40 a barrel and still be profitable according to this WSJ report. All Middle Eastern countries cannot meet budget needs at $40 a barrel. In 2018 oil prices increased back up to $77 a barrel. In the next wave of declining prices the shale industry is better positioned than the OPEC countries.   ...

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Saudi price cut in November 2014 to reverse market share decline in the U.S. The Saudi share of total U.S. oil consumption declined to 4.6% in August 2014 from 7% in August 2013, according to EIA. This brought NYMEX price to below $80 in early Nov. 2014.

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U.S. oil imports from Saudi Arabia increased by about 20% in 2012, increasing dependence on the volatile Middle East region.

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Russia's economic planners and president Putin underestimated the importance of foreign investment to build its tech sector and diversify the economy away from its dependence on oil and gas commodity exports. The strong balance sheet with only 20% of GDP in government debt and over $300 billion in foreign exchange reserves created a false sense of security. An adventurous foreign policy has resulted in western sanctions and a poor investment climate crippling much needed foreign investment. Capital flight exposed vulnerabilities in the economic situation and cracks were evident in the emerging markets crisis in early 2014. Russian corporations were exposed as they depended on access to financial markets which was reduced with EU and U.S. sanctions. These problems were compounded by Dec. 2015 as OPEC led by Saudi Arabia did not cut back production to offset higher shale oil supplies, leading to the drop in oil prices below $50. Experts see the drop as being a lasting factor and Russia's finance minister sees no rebound of oil prices to $100 as happened after 2008, accepting a long term situation of low oil prices. This increases dependence on oil says Barley. It shows how Russia under Putin had grown complacent about the risks to the economy of not forging ahead with an aggressive plan of diversifying into tech and related sectors. In a competitive global economy the risks of standing still, of complacency, misallocation of resources, poor decisions, and weak political processes, can be disastrous....

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The cost of social stability in OPEC countries is changing the attitude of countries that advised moderation in pricing in the past. Saudi Arabia has committed itself to $129 billon in new spending for public sector jobs, pay increases for state employees, and allowances for the unemployed, to preserve social stability after the democracy protests in the Middle East. This is happening throughout the Arab world and in most OPEC countries. Algeria and Iran have also increased social spending. The oil price that Saudi Arabia needs to balance its budget and pay for this is going up from $68 a barrel in 2010, to $88 in 2011, and $110 in 2015, according to the Institute of International Finance. Merrill Lynch says it is $95 a barrel for this in 2011. This is bringing the moderates like the Saudis and the hawks like Iran and Venezeula together on price issues. In the second week of April 2011, Saudi Oil Minister Ali Al-Naimi, said the Saudis had cut production by 800,000 barrels a day in March because of oversupply in the market. A consultant for Arab Petroleum Investments Corporation which reflects Saudi and OPEC views, says: "OPEC members spending pattern is expected to bear on their oil price preferences and production policy behaviour." The only restraint on price will be that price at some point will affect the global economic recovery and lead to lower consumption and growth, something the Saudis have paid attention to in the past....

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Higher oil production in Saudi Arabia in 2012 as the Saudis support U.S. sanctions against Iran.

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U.S. oil exports are expected to average 1 million barrels a day for all of 2017. In 2016 in some months the average was 1 million barrels a day. U.S. oil exports make up 1% of global oil volumes, yet the added inventory has helped keep prices in the range of $46  to $55 a barrel in mid 2017. American crude is at a $2.50 discount over the Brent crude benchmark, making it profitable to export to far away locations. Back-haul economics also helps as tankers coming back from the middle east can now take crude back with a stop in Europe. Oil exports go to China and Europe. Production declines in China have led to China importing from the U.S.

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Saudi Arabia's strategic moves at the OPE pricing meeting in Nov. 2014. Saudis push for keeping the production levels as they are, not making any cuts. Analysts say the Saudis are aware other OPEC countries and other producers outside OPEC such as Russia, are not likely to make cuts in production as they face severe budget constraints- especially Venezuela, Iran, Russia. In this situation they have decided to take a wait and see approach to see where prices are headed in coming months. A price of $60 for Brent crude is likely to lead to cuts, according to some analysts.