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EScroogeJr (< 20)

Saudis decide to play Chamberlain

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June 14, 2008 – Comments (14)

The Saudis act like a timid gangster who pulls out a knife only to have second thoughts and put it back. This never works on the streets of Chicago, and it won't work in the US-Saudi ralationship either. 

The Saudis had two options. One was keep the price under $20 and hope consumers will never move to develop alternative technologies becuase $20 is so cheap. The other was to hike prices to the maximum and hope to earn enough windfall profits before Americans, Chinese, Europeans, Japanese, etc. put a solar panel on every roof and sidestep the Saudi oil altogether.  Instead, they chose the third option: go for Option 2 but give away the profits.

How do they imagine it's going to play out? Do they really think if they lower the price to $100, the Americans will stop solar research, solar companies will shut down, and they'll be selling oil for $100 forever and be very happy? That's naivete raised to an exponential power. Once you raised your price above $20, there is no going back. People have made up their minds to find an alternative solution and kick you out of the market at the first opportunity.  If you try to appease them with $100 oil as opposed to $130 oil, they'll say "thank you" and continue to develop alternative technologies at the same breakneck pace as before. You can collect $130 for the next 10 years and starve then, or you collect $100 for the next 10 years and starve then, but you cannot escape the worst-case scenario by appeasement, as Chamberlain found out. What the Saudis decided to do is the equivalent of giving away Sudetenland to avoid war. Of course it's the surest way to fail on bouth counts, but after all, the main lesson of history is that people don't draw lessons. Stupid, stupid Saudis.

http://biz.yahoo.com/ap/080614/saudi_oil.html 

RIYADH, Saudi Arabia (AP) -- Saudi Arabia's oil minister on Sunday will address reports that the world's largest oil-producing country is set to raise production by about 500,000 barrels per day, his adviser said.

 

The increase would bring Saudi Arabia's oil production to 10 million barrels a day, the country's highest ever, according to reports by The New York Times and the Middle East Economic Survey, an industry publication.

Adviser Ibrahim al-Muhanna told The Associated Press on Saturday that he could not confirm the reports, but added: "Minister Ali al-Naimi will clarify this tomorrow."

Saudi Arabia has called for a meeting of oil producing and consuming countries on June 22 in the port city of Jiddah to discuss ways of dealing with soaring energy prices.

The New York Times report on Saturday, citing unnamed analysts and oil traders briefed by Saudi officials, said the production increase was to be announced following the meeting.

The Middle East Economic Survey said Friday that Saudi Arabia was considering a production increase, but did not provide a source.

The Saudis are concerned that sustained high oil prices will eventually slacken the world's appetite for oil, affecting them in the long run.

 

 

14 Comments – Post Your Own

#1) On June 14, 2008 at 8:56 PM, MarketBottom (29.26) wrote:

The price of oil will continue to climb. Here's why.

1) Global warming is real and growing

2) Oil was in the earth for a purpose. It acts as an insulation barrier, a natural coolant to disperse inner temperatures. Oil production replaces oil with water which is less efficient.

3) Global oil production is declining as easy to find and reclaim products are used and now are being replaced by much heavier oils ( sour oil ).

4) Emerging markets will take up any US slack short term.

5) Eventually most if not all fossil fuel will be banned out of self preservation, rendering them worthless.

6) Short term demand will decrease only because of extreme high price

Was it Norway that paid the 9 million dollars for the Doomsday Seed Vault, and Bill Gates that paid for the transportation of 150 tractor trailer loads(6 million pounds) of seed from every country on the face of the earth?

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#2) On June 14, 2008 at 8:57 PM, MarketBottom (29.26) wrote:

The price of oil will continue to climb. Here's why.

1) Global warming is real and growing

2) Oil was in the earth for a purpose. It acts as an insulation barrier, a natural coolant to disperse inner temperatures. Oil production replaces oil with water which is less efficient.

3) Global oil production is declining as easy to find and reclaim products are used and now are being replaced by much heavier oils ( sour oil ).

4) Emerging markets will take up any US slack short term.

5) Eventually most if not all fossil fuel will be banned out of self preservation, rendering them worthless.

6) Short term demand will decrease only because of extreme high price

Was it Norway that paid the 9 million dollars for the Doomsday Seed Vault, and Bill Gates that paid for the transportation of 150 tractor trailer loads(6 million pounds) of seed from every country on the face of the earth?

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#3) On June 14, 2008 at 10:31 PM, FleaBagger (28.87) wrote:

I guess they could have "sold" oil for 1/5 of the price set by global supply and demand, but why shoud they?

The increase in crude oil prices was caused almost entirely by a decrease in the dollar and a simultaneous skyrocketing of Indo-Chinese demand. Another factor in our shock was the long-term depression of energy prices that were bound not to last. 

MarketBottom - how in the world does your 5th point cause oil prices to climb? (By the way, I don't think your 5th point is true.)

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#4) On June 14, 2008 at 10:45 PM, MarketBottom (29.26) wrote:

Largest producers will get every last dime they can, until they can't get a penny.

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#5) On June 14, 2008 at 10:47 PM, MarketBottom (29.26) wrote:

Largest producers will get every last dime they can, until they can't get a penny.

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#6) On June 14, 2008 at 11:31 PM, EScroogeJr (< 20) wrote:

MB,

Loved points 1,2, and 5. Especially point 2. The effect on prices is so obvious :)

FB,

I think production quotas did play their role. When a minister comes up with extra 500,000 barrels, it's clear they did not materialize overnight, but instead were stashed away somewhere. That was a rational behavior on their part, and I don't see why they want to abandon it now. If they increase production by  5% and prices plunge by 30%, they'll become poorer, not richer. 

 

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#7) On June 14, 2008 at 11:33 PM, FleaBagger (28.87) wrote:

Scrooge - did you ever explain what this has to do with Wilt Chamberlain?

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#8) On June 15, 2008 at 12:23 AM, DemonDoug (74.51) wrote:

i would like a link to point #2 MB.  I have never in my life heard that and a cursory google search shows no evidence of any article to indicate that is the case.

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#9) On June 15, 2008 at 12:24 AM, EScroogeJr (< 20) wrote:

FB, 

you should have put a smile after Wilt :)

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#10) On June 15, 2008 at 2:39 AM, awallejr (81.61) wrote:

Flea I sure hope you were kidding.  If not, think "Neville."

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#11) On June 15, 2008 at 12:27 PM, MarketBottom (29.26) wrote:

DD,

The land on which we live actually floats and the balance of systems below the surface are being destroyed at an ever faster pace. New Guinea is presently starting to move 2000 people from a small island chain in the south pacific as the chain will be under water within 3 to 5 years. The water is rising or the land is sinking. Here is a link to an study, and there are many more.

http://www.sciencedaily.com/videos/2008/0213-world_on_water.htm

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#12) On June 16, 2008 at 4:21 AM, saunafool (98.70) wrote:

Scrooge,

I think you are a little optimistic about our projects for renewable energy. It's typical for Americans to think that once gasoline hits $5 a gallon that alternative fuels or vehicles will hit the market overnight.

Obviously, part of the problem is that automakers think that if the typical car were like the proposed Chevy Volt, fuel prices would drop back to $1/gallon and then the typical IC engine would again be a much more economical solution. Therefore, they need a long term model that says gasoline is going to stay above $5 a gallon for an entire product development and sales cycle--say 10 years or so.

Meanwhile, in Europe, due to taxes, gasoline has been more than $4/gallon for the past 20 years at least. Yet, no European companies have stepped up and created revolutionarily efficient technologies. Maybe the battery technology didn't exist, maybe consumers can spend more on fuel than we think, maybe Europeans are stupid and can only make BMWs, Mercedes, Porches, Volvos, Saabs, Lambourghinis, Peugeots, Citroens, Skodas, Audis, Seats, and Renaults. How is it that none of these companies found a solution for $4/gallon over 20 years? The best they found was very good diesel engines.

Now, because America is hurting, we think we are going to turn off the oil spigot overnight? Not going to happen, my friend. Oil will remain high (volatile in a range from $65 to $150 or higher) over the next several years. It isn't going to fall below $50/barrel until we no longer need it. That day is somewhere in the future, in a galaxy far, far away.

Personally, I'd like to see that day arrive as fast as possible. With my money and my CAPS score, however, I'm sticking with the oil patch. 

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#13) On June 16, 2008 at 9:56 AM, EScroogeJr (< 20) wrote:

"How is it that none of these companies found a solution for $4/gallon over 20 years?  "

Hmm, they dropped the average price for a PV module from almost $100 per watt in 1975 to less than $4 per watt at the end of 2006. I'd call that pretty revolutionary and quite effective. Personally, I hope the Saudis come to their senses, turn off the spigot (halfway) and get much richer at our expense. That would plunge us into a recession and take asset valuations down, so that I could get some nice cheap prices before I've bought enough to align my own interests with those of the baby boomer generation. Then of course I'd be rooting for cheap oil.

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#14) On June 16, 2008 at 11:33 AM, FourthAxis (< 20) wrote:

"Do they really think if they lower the price to $100, the Americans will stop solar research, solar companies will shut down, and they'll be selling oil for $100 forever and be very happy?"  - Worked after the 70s.

Now we may get a chance to see how much capacity they have.  

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