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The OPEC meeting in Doha in April 2016 fails to lead to an agreement to freeze oil production at Jan. 2016 levels, with Iran staying away from the meeting.

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The OPEC meeting in Qatar in April 2016 to stabilize oil prices with a freeze in production is not likely to affect supply and demand. Saudis and Russia are producing all out, and Iran plans to increase its production, making it difficult to reach an agreement. The International Energy Agency, IEA, predicts demand will rise by the end of 2016 from 94.8 million barrels a day to 95.9 million barrels a day. Production is at 96.4 million barrels a day, and this is expected to lead to narrowing the gap between supply and demand. Experts say cars are becoming more fuel effficient, and electric car technology is becoming commercially viable, leading to a lack of growth in demand in developed and middle income countries. This may have to be factored in for the intermediate and long run for demand growth.

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How much is the drop in sales of light trucks, including truck based SUV's? Acttually not much so far, title is misleading! 2004- 55.7% of total vehicle sales 2005- 54.9% of total vehicle sales 2006 1st quarter- 53.8 % of total vehicle sales source: Autodata, NYT cite For GM in April 2006 situation according to GM figures Overall Light Truck sales up 1.5% Escalade up 127% Tahoe up 30% Overall GM down 7.3% in all vehicle sales in April source Ward's AutoInfo Bank But the mix weighted toward the Escalade, Tahoe, and new SUV's which are non-incentive and priced to meet demand, which mean higher profits to make up for lost volume in cars. This is occurring in the middle of bigger changes, and as GM moves to introduction of more fuel efficient cars with better quality and appeal to younger demographics. GM is restructuring to transform itself into a global company with growing Asian sales and shifting volumes overseas. It is shifting employee and capital base to more countries overseas to create new opportunities and make GM a new and different company, a global company. Incentives pay part of the gas price for buyers, and more fuel efficient SUV's also chip in to pay gas costs. Americans are not out to get off the SUV's just yet, as fuel effficiency standards go up.The investments oil companies are making are expected to provide a payoff in increased production by 2008-2009, and the new oil policy of Saudi Arabia kicks in (see Naimi at CSIS 2006 meeting). The situation eases up for families accustomed to carrying kids around or hauling stuff around. See also links to Tradin Frenzy (Mouawad, NYT, 4/29/06) speculators in oil markets cause 10-20% of price rise, could lead to drops later after ethanol part of spike eases, and if global demand drops with economies cooling off a bit. ...

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A plan appears to have been put in place by the U.S. and the European Union countries to strengthen the American position in negotiations with Iran underway in Istanbul. The impact on oil prices and on U.S. and E.U. growth as a consequence of higher oil prices, especially when the eurozone countries faced lowed growth, was one of the ways Iran hope to blunt the tightening of sanctions against Iran's nuclear program. It now appears from information released by the International Energy Agency that a plan was implemented by the Saudis in recent months to build up reserve supplies. At the same time a similiar effort was being implemented to increase production in Iraq and Libya so that it would add to reserves added by the Saudis. Daily output from OPEC countries increased by about 1.4 millon barrels in the Sept 2011- March 2012 period, as the confrontation with Iran took shape with increasing pressure using sanctions on Iranian oil, according to the IEA. Of this 1.4 million barrels a day increase, one third is from the Saudis and the rest from Iraq and Libya, according to IEA. In March 2012, OPEC oil production increased by 135,000 barrels a day to 31.4 million barrels, mostly from higher output in Iraq. The Saudis have filled up domestic oil inventories and placed an additional 10 million barrels of oil in storage close to markets in Europe and Japan. This suggests that this was part of a quietly implemented plan in cooperation with the U.S. and the EU countries to increase the effectiveness of sanctions and protect global oil supplies from disruptions; even as the U.S. pressured Japan, S. Korea, India and other countries to reduce purchases of Iranian oil. The economies of India, the EU and other countries were already beginning to feel the impact of higher oil prices in the 1st quarter of 2012....

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Khalid al-Falih, chairman of Saudi Aramco, says at the World Economic Forum in Davos, on Jan. 26, 2016- "If prices continue to be low, we will be able to withstand it for a long, long time." With $630 billion in foreign currency reserves the Saudis are following a long term policy of full production. Gasoline subsidies are being reduced, IPO of Saudi Aramco being discussed to raise additional capital, and other steps being taken to plan for long term oil prices. Flexibility for a change in policy is diminished with the addition of Iranian oil production to supplies following the lifting of sanctions. The events in 2015-2016 of Russian bombing campaign in Syria, and the cutoff of diplomatic relations with Iran, have worsened the standoff with Iran and Russia in the Middle East conflict. As a result it appears that the Saudis are settling down for a long term policy of full production which would keep oil prices low for the long term. India, Japan, China, the U.S. and the European Union, Turkey and other countries benefit from low oil prices when their economies need a boost in 2016-2017....

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The WSJ's Spencer Jakab points out the role of politics- with Saudi Arabia in a standoff with Iran and Russia in Middle Eastern conflicts- and Saudi policy of full output with no cuts unlikely to change, ensuring lower prices for 2016-2017.

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With domestic oil consumption growing at 10% a year, and the Arab Spring leading to increased subsidies and social spending, the Saudis are looking at nuclear power to generate some of the supply of electricity. Saudi Arabia expects to have no reserve margin of supplies by 2020 at current levels of domestic consumption. In 2011 the Saudi government setup the King Abdullah City for Atomic and Renewable Energy, or KA-CARE, for coming up with nuclear energy policies. KA-CARE has an agreement with French supplier AREVA.

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A big factor in U.S. car sales, which reached 7.5 million in 2015, exceeding the 7.3 million in 2000, is that a large portion of cars on the road were about 11 years old following the recession in 2008-2009. As Dexter Ford pointed out in a article in 2012 many car owners on the road had replaced the earlier 100,000 mile mark before buying a new car, with 200,000. This pent up demand, and the better technological features including gasoline conserving technology, gave new impetus to demand in 2013-2015. Lower gasoline prices at the pump of about $2.00 a gallon in Jan. 2016 across parts of the country made it economical to own SUV's and pickup trucks. The U.S. car companies Ford, GM and Chrysler-Fiat had sales of 2 million full size pickup in 2015, with the Ford F-150 leading. Car companies have come through a severe crisis and are taking steps to avoid a repeat of the mistakes of the past on fuel efficiency- Ford has introduced a lighter aluminium based version of the F-150 for example. Gasoline prices also provide buyers with extra money to meet car payments which now have been stretched to longer periods and lower rates by auto companies to reduce the cost burden per month. AAA says the average price in 2013 for a gallon of gas was $3.49, in 2014 at $3.34, in 2015 at $2.40. AAA says that 71% of gasoline stations sell gas at less than $2.00 in January 2016, and gas prices are likely to remain low for an extended period with lower demand from China, higher fuel efficiency going forward with stricter standards, new technology for shale oil production, and the replacement of cartel pricing by competing production from Saudis, Iran and Russia. On average Americans saved $115 billion on gasoline, or $550 per licensed driver, according to AAA's Daily Fuel Gauge Report of January 6, 2016. In addition to the $550 saved the higher fuel efficiency with new technology adds a corresponding amount to savings per driver. Add to this the lower payment at low rates over longer periods and the car payment per month has been reduced significantly in a improving job market, to support car sales....

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Daniel Yergin of consultancy firm IHS describes the geopolitical disputes in the Middle East between Russia, Saudi Arabia, and Iran that are leading to likely continued oversupply of oil in 2016, keeping prices in the $30-$40 range. Saudi Arabia is not likely to change its policy of going after market share, Venezuela is affected but lacks a voice in OPEC decisions, Russia continues its policies in Syria and Iraq under the Putin government affecting other Sunni states, and Iran following the lifting of sanctions is likely to ramp up supply to make up for its lost market share- all leading to an extended period of low prices. This situation benefits China, the European Union countries, India, Turkey and the U.S. in a period of slow economic growth in 2015-2016. Russia looks to use this period of low oil prices to shift to domestic industry after a period of rising imports when oil prices were high. The Saudis seeing their interests in the region threatened by Iran and Russia, and dissatisfied with the foreign policy of president Obama, see a policy of pushing for market share as appropriate in the current geopolitics of the region....

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Said, Kent and Faucon describe the meetings and maneouvring between oil producers that led to the decision to not cut production at the November 2014 OPEC meetings in Vienna. This led to a drop in Brent crude down to below $70 by Dec. 2014, with Russia, Iran and Venezuela losing, countries such as India, and motorists benefitting from lower oil prices.

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The decision reached at the OPEC meeting on June 5, 2015, was to maintain production at current levels of an official level of 30 million barrels a day. This official level now acts as an indicator, as actual production is estimated at 31 million barrels a day.

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The benchmark price of U.S. crude oil dropped to $31.41 a barrel on January 11, 2016, as oil prices continued to drop sharply following a slowdown in China, appreciation in the U.S. dollar and no cuts in production from Saudi Arabia. Analysts expect a crisis for energy producers that is deeper than ones in 1986, and five plunges in oil price all the way back to 1970. With the oil prices at $30 and expected to drop below $30, the companies that took on a lot of debt have no choice but to keep up production. In the process many may find themselves in bankruptcy. Private equity with capital of $100 billion is likely to come in at this point to buy cheap assets without the debt, say analysts. U.S. banks energy portfolios are small, with Wells Fargo energy exposure only 2% for oil and gas loans in the third quarter of 2015, or about $17 billion. Loans that are rated "sub-standard. doubtful or loss," are projected at 15% of loans to energy producers, about $34.2 billion, in a biannaual review by banking regulators. The unusual aspect of this energy price slump is that production is not declining with falling prices- oil production in the U.S. was estimated by the government at 9.2 million barrels a day in Jan 2016- 1% higher than at the beginning of 2015 when prices were over $40 a barrel....

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Experts point out that Saudi oil price policies are set on a technocratic basis by a small group of advisors. An oil industry veteran Naimi, 79, leads this group of advisors. This means the new King Salman is likely to follow the same course as his predecessor King Abdullah. Gulf oil officials were expecting a drop to around $50 to $60 a barrel, the drop below $50 has surprised even the Saudis. NYT cites IMF estimates of a loss of oil revenues for Saudi Arabia and its allies in the Persian Gulf of about $300 billion in 2015. The Economist and WSJ reports say that for the long term shale oil production and advance in technologies are likely to play a lasting role in keeping oil prices low. At a time when Saudi society is changing, population growing, an older generation likely to transition to a younger generation in government, the cost of the social safety net and ample benefits will remain a concern for the Saudis for the long term.

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A recent Deutsche Bank study points to the pro-cyclical nature of oil prices in this decade where oil price increases do not lead to decreased worldwide consumption. The IEA forecast is for 1.64 million barrels of oil a day in increased coonsumption in 2013 compared to 2011, which hides a drop in consumption of 640,000 barrels a day in OECD countries. That is offset by higher demand in China, the Middle East and Russia. Middle East consumption is about 80% of consumption in China, and oil price increases lead to higher growth in these countries and Russia leading to increased oil consumption reinforcing a pro-cyclical cycle. What is not clearly understood is how this changes with weaker economic growth. Additional factor to consider is future increasing growth of oil consumption in India, Pakistan, Bangladesh, Indonesia, Vietnam and other developing countries that offset reductions in Chinese consumption as China's growth rate slows.

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Ailworth and Faucon describe the ways in which shale oil producers such as Continental Resources in Texas and S. Dakota are responding to the drop in oil prices. One strategy adopted is to put off 60% of the expense of production by not completing the final stages of production of hydraulic fracturing, but keeping the wells ready so that production can quickly be ramped up if prices go to the $60-65 range. EOG Resources, Andarko, Apache, Chesapeake Energy, are also following this strategy. There are about 3000 such wells, not pumping but drilled and ready for hydraulic fracturing, according to RBC Capital Markets estimates. This strategy would mean large shale oil supplies well into the future to keep oil prices low. Production from lower cost wells continues with U.S. oil production climbing to a new high of 9.4 million barrels a day for week ending March 6, 2015, according to federal data. This shows that this is a new situation and the resilience of shale oil supplies may have been underestimated. Another strategy adopted by other large companies such as Exxon is to continue to develop technology by learning to get the oil out of the rock in the most cost efficient way. The capital investment in U.S. shale oil has dropped by $50 billion in 2015 compared to 2014. The number of oil rigs drilling declined to 866 in the U.S. by March 2015, according to Baker Hughes....

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U.S. commercial oil inventories cover about 164 days of net imports by Jan. 2015. Excluding net imports from Canada and Mexico this reaches 279 days of net imports from other countries. When strategic oil reserves are included this goes up to 450 days, which will put pressure on oil prices in 2015 as the price of oil drops below $50. The surge in oil production in the U.S. by 1.2 million barrels a day contributed to this buildup.

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Exxon has cut costs of shale oil production by learning new cost efficient ways of getting the oil out of the rock. Exxon states it has cut costs by 20 to 25% for production in the Bakken from shale, making it possible to invest in shale oil production at much lower prices as the learning continues. This will be a factor for oil prices in future years.