https://www.nasdaq.com/articles/oil-could-hit-%24380-if-russ…
Brent prices could soar to a “stratospheric” $380 a barrel in “the most extreme scenario” of Russia slashing oil production by 5 million barrels per day (bpd) in retaliation to a price cap being considered by the Group of Seven, analysts at J.P.Morgan said in a note dated July 1.
Could or would OPEC nations pick up the slack?
Could or would OPEC nations pick up the slack?
Could but would not necessarily do it. The stated purpose of the OPEC Cartel is to maintain “fair” oil prices, to prevent imperialist exploitation. You know, those nasty guys Steve calls JCs. 
The Captain
citizen of the country that invented OPEC
Venezuela invented OPEC but required the assistance of Saudi Arabia to make it a reality.
Could or would OPEC nations pick up the slack?
Not without the showering honor and praise on MBS.
intercst
Could or would OPEC nations pick up the slack?
No and No.
I do not believe OPEC+ has the capacity and at least Saudi does not have the will.
This article gives a brief explanation: (politicians mentioned)
https://oilprice.com/Energy/Crude-Oil/Saudis-Unwilling-To-Up…
Both the Saudis and Russia benefit from the OPEC+ deal, so Riyadh wants to keep Russia on board, the sources say.
“The Saudis are enjoying high prices while the Russians need guaranteed support from OPEC+ in the current circumstances,” a source familiar with Russian thinking told Reuters.
Neither is OPEC+ as a group anywhere close to reaching its target production, nor has Saudi Arabia much spare capacity left to boost production further, as the U.S. and other major consumers want. Per the OPEC+ deal, the Saudi target (as well as Russia’s) is at 11.004 million bpd for August. The Kingdom has rarely reached this level, and not for a sustained period of time. So, it’s not certain that the Saudis have the ability to pump 11 million bpd or more on a sustainable basis. It’s even less certain that the Kingdom can quickly tap—if it wanted to—into the 12.2 million bpd production capacity it claims it has.
I also do not believe $380 is even remotely possible. I believe qazulight is correct in this post that demand destruction will occur long before that level is reached.
https://discussion.fool.com/db-lets-assume-that-this-is-a-reason…
Analysts I read seem to think demand destruction will become significant at the $150-$180 level.
Could or would OPEC nations pick up the slack?
The context of the prediction is that at 5 million barrels a day of Russian oil left the world market, then oil could soar to 380 dollars a barrel.
5 million barrels a day out of the current 35 million barrels a day is about 14 percent. The answer is yes and no.
Yes it can be made up, but no it cannot be made up in a quarter or even in a year.
As you are looking at 35 million times 250 dollars a day coming out of the world economy, or 7 trillion dollars a day, then you can expect the economy to contract.
Another way to look at is this, the world economy runs on oil. A 14 percent reduction in oil supply would require a 14 percent shrinkage in the economy to match. This will not be even across the planet. Those that produce oil will see net gains and those that import will contract mor.
I posted a little more detail on DB’a thread, the idea is the same. You get a recession, and a dramatic shift in the economy.
In the United States, you can expect dramatic growth in the mid west and tough times on the East and West coasts.
I would expect that the first thrust would be Eagle Ford shale, buy land in San Antonio, Bakke Shale, buy land in Williston North Dakota, the
oil fields in Odessa and Midland Texas as well as Oklahoma and Colorado.
If it looks like we have 7 to 10 years shortage of oil, then large developments in the Gulf of Mexico and off shore West Africa and Brazil.
The shale is faster to be stood up with less infrastructure. Offshore takes longer and costs more, but produces a longer running field.
As electricity rates have a fuel cost adjustment and there will be shifting of consumption
from oil to natural gas, you can expect that the homeowner electric bill to increase causing a faster move to solar plus storage.
The bottle neck of course will be batteries, and batteries is
where the money will end up being focused.
Cheers
Qazulight
If oil rises that high or anything like that we will cut off Russia all together.
Yes OPEC nations are already beginning to discuss upping their quotas.
In the meantime more VZ oil is in the wings. The American public will allow that in this situation.
Russia wont see an extra dime from their actions. There people will starve if they cut productions by 3 or 5 million barrels.
I can see Putin’s head rolling.
I do not believe OPEC+ has the capacity and at least Saudi does not have the will.
None of us have the actual numbers at all. There are reasons for that I can concisely mention.
But
https://www.ft.com/content/2b6ed520-347b-4c1d-be08-6e70b767f…
snippet
June 7, 2022
What did Opec+ promise — and why now?
After months of White House pressure, Riyadh relented and agreed with other Opec+ producers to accelerate production. The decision pulls forward supply increases already planned by the group for September into July and August, when the monthly increases will be about 650,000 barrels a day.
Cartels are often set up for commodities by countries with dictatorships. A major feature the dictators can be bribed for extra output. The accounting is not accurate at all. The bribes in the west are illegal. Our oil company accounting is not accurate. Mix in the needs of different agendas to create perceptions for investment and pricing pressures. Frankly we have vague fuzzy accounting regarding what is actually being supplied.
This would never be any sort of shock to any of you. But consider the "official" numbers are not right.
This is includes SA's capacity numbers. The public number is kept very vague to stabilize oil prices at higher levels. We do not know their actual capacity numbers. If you expect to invest on what the Kingdom tells you remember you are being lied to in all likelihood.“worst case scenario” eh? More media hype.
Like the weather guy screaming “SEVER WEATHER…marginal risk of SEVERE WEATHER”. Do you know what the probability rate of “marginal risk” is? 5%, meaning the weather man’s “SEVERE WEATHER” hysteria is 95% BS.
Steve
This is includes SA’s capacity numbers. The public number is kept very vague to stabilize oil prices at higher levels. We do not know their actual capacity numbers. If you expect to invest on what the Kingdom tells you remember you are being lied to in all likelihood.
That reminds me of the book “Twilight in the Desert”, which is an excellent book that I recommend to everyone. Especially if investing in oil. The premise of the book is that Saudi Arabia is starting to run out of oil and the impact that is going to have world-wide. (The book was premature in its assessment of SA, but perhaps that is coming true now?).
Aside from the prediction of a drop in output the book is chock full of super interesting stuff about getting petroleum out of the ground. How it is found, how it is removed, how the process of removal can increase or decrease the total amount that can be extracted (versus the total amount of what is there).
The part of the book that meshed with the above is how everyone knows that export quotas are set, and then ignored. But Wall Street believed they had figured out how, so markets pretty much “worked” anyway. Then OPEC decided to stop fudging the numbers and report accurately, which threw all the Wall Street models into haywire and the markets no longer knew what to think. I believe oil crashed as a result. It was not too long after that OPEC went back to their normal behavior and Wall Street settled down…
"That reminds me of the book “Twilight in the Desert”, which is an excellent book that I recommend to everyone. Especially if investing in oil. The premise of the book is that Saudi Arabia is starting to run out of oil and the impact that is going to have world-wide. (The book was premature in its assessment of SA, but perhaps that is coming true now?).
Aside from the prediction of a drop in output the book is chock full of super interesting stuff about getting petroleum out of the ground. How it is found, how it is removed, how the process of removal can increase or decrease the total amount that can be extracted (versus the total amount of what is there)."
Excellent book from 20 years ago… but he was off by a bit when fracking and horizontal drilling enabled significantly more oil from more places to be extracted.
Saudi has the largest reserves of oil in the world - and is willing to spend money on investments and technology to keep up the oil flow. Whether than increase significantly oil output is a good question - and one must be careful of trying to extract ‘too much too soon’ as it can permanently damage oil fields.
Most of Saudi oil is done by water injection. That takes millions of barrels of water a day to inject into wells to force out oil. water isn’t in large supply in Saudi. They keep finding small new fields but there’s lots of money to develop and many are ‘challenging’ to get the oil out.
More worrisome is other OPEC members. Nigerian oil down due to ‘rebel activity’. Libya same deal - output down.
Iran - output up but oil equipment sanctions hurt.
Venezuela - tough to predict. Most of oil is oil sands type that is difficult to ramp up - way down from years ago. Sanctions hurt - and take over by government of private industry fields dried up capital investment and experienced people.
So stay tuned…
Meanwhile, major oil companies are essentially liquidating assets… focused more on returning equity /profits to shareholders. Much smaller investments in just keeping output the same or declining over time.
Remember than most oil fields decline at 4%/yr …year in, year out. Fracked wells often a lot sooner - many gas wells peak before 18 months and rapidly go down 20-30% a year.
t.
t,
That is a good summation but the geographic politics/economics are changing. It would be easy to stay back a month and say yep Ukraine but that premium pricing is baked in obviously.
A competition downward in pricing is beginning.
The price is not a simple supply and demand. Meaning I can have a price of $3 on a pair of red sox. I can have a price of $10 on the same pair of red sox. The supply and demand can be the same in each instance.
That supply and demand in the bigger picture is also less demand by the industrial nations as we are slowing down into recessions. The theory of supply and demand is many nested charts.