One real dumb stupid argument

Ok below is a really stupid dumb argument to counter the market manipulator’s mouth piece’s arguments which are saying OPEC is broken and to counter the giant vampire squid’s scare tactics which are driving unsuspecting speculators in the futures market into a very ugly short squeeze trap which they will never forget.
From US Energy Information Administration (EIA) short-term energy outlook, 8 December 2015 (http://www.eia.gov/forecasts/steo/report/global_oil.cfm)

OK so in 2015 global petroleum (and other liquids) production averages 95.54 million per day.

OPEC production in 2015 accounts for 37.43 million b/d or 39.1% of global production.

Now consider OPEC’s strategy and what it is costing them in lost revenue.

Last year the oil price was trading at about $100 per barrel and now it is more like $40 per barrel (approximately).

So using the figures in the EIA table above, OPEC’s revenue last year would have been about 36.35 million b/d x $100 per barrel or about $3.635 billion per day and now it’s more like 37.43 million b/d x $40 per barrel or $1.497 billion per day.

Over a whole year at these price differentials the lost revenue would equate to $2.138 billion per day x 365 days = $780.37 billion per year.

Now the differential between world supply and demand (in Q4 2015) according to the EIA chart below is only 1.45 million b/d (the difference between 95.82 million b/d production and 94.37 million b/d consumption).


Now let’s just forget about the current existing oil (and liquids) stock in the world and just consider the supply and demand equation and just think about how much it would cost OPEC in lost revenue to balance the supply demand equation.

Well that’s easy, it’s 1.45 million b/d x $40 per barrel (assuming the oil price does not respond to a 1.45 million b/d cut by OPEC….. LOL) =  $58 million per day or $21.170 billion per year.

Now ask yourself why would OPEC want to lose $780.37 billion a year in revenue between 2014 and 2015 if the “cost” of balancing the supply and demand curve is only $21.17 billion per year (and that’s assuming the oil price would not rise in response to a 1.45 million b/d OPEC cut…LOL).

Answer: OPEC are doing the US slowly and are making sure they do a charmingly good job of it. Once US shale oil hedging dries up in 2016 and companies are put in liquidation, then the thousands of guys wearing their baseball caps back to front will stop driving around the country in pickup trucks maintaining the thousands and thousand of loss making wells (including those that now lie unstimulated), the pipes will start to rust, the infrastructure will start to collapse, records will be lost as companies are wound up and their computers are sold to the highest bidders at cash and carry auctions in 2017, experience and corporate memory will be lost as once highly paid oil professionals lose their jobs and are forced to sell their expensive properties to down size into small condos or worse still end up sleeping in their cars in parking lots after their high maintenance wives file for divorces. The equity markets will start their long collapse and the last nail will be driven into the US tight energy coffin. You don’t just sit there losing $780.37 billion in revenue per year just for the fun of it when the cost in lost revenue of balancing the market is only 2.7% of the revenue you have lost year on year.  Burying US tight energy for good is an expensive exercise that needs exactly the right degree of timing, money and patience.

Eshmun