More US companies to collapse due to Saudi oil strategy

With prices at historic lows, oil industry executives do not expect oil to return to the $100 a barrel price range anytime in the near future. On the way down forecasters have been embarrassed because each bottom is only a brief stop to the next one.

Saudi Arabia has refused to cut production, instead opting to defend its market share against higher-cost competitors. That is an oversimplification. No one wants to be an outlier, so forecasters look at what others-the experts-are predicting and make sure that theirs is consistent.

The fund also downgraded its global growth forecast for Y’s 2016 and 2017 by 0.2 percentage points to 3.4 and 3.6% respectively. They will stay there until the economy has a growth spurt.

In 2008, when prices crashed, the supply of into the marketplace had hit an all-time low while global demand was at an all-time high. There have been numerous articles citing dropping rig counts, financial doom in the oil patch, lender lamentations and other, negative “glass half empty” prognostications for US shale oil producers. Predating the outcome of Oil Price of 2016 as 2015 was drawing down closer, the oilfield services analyst and managing director of Credit Suisse James K. Wicklund said with conviction 2016 was already in the trash can. This is because shale oil is more expensive than conventional means, which is fine when gas prices are $150 a barrel. As with all commodities, the oil price is determined by the balance between supply and demand. The corollary is also true.

However, del Pino said despite the plummeting prices, the production costs per barrel remain “far lower” than the final sales price. But it has turned into a burden as oil prices have fallen so much. In the past, it was easier to explain the ups and downs. But even in this increasingly post-industrial age, oil’s importance has not declined enough in the geo-strategic, geopolitical and, more so, geo-economic terms. Recoveries or interruptions in supply had the opposite effect.

Official Chinese statistics have been criticised by analysts around the world, with many convinced that Chinese growth is significantly slower than the government will admit. In the United States, a large number of shale producers are facing bankruptcy and shale production is falling.

Iran will try to regain the market share it lost to Saudi Arabia during the sanctions and the Saudis will be forced to compete.

Saudi Arabia’s current budget is reportedly based on an average oil price of about $40 a barrel.

The downgrade comes as Brent Crude prices touched a 14-year low earlier this month to drop to 28.08 bbl, oversupply continues to depress the market.

BHP Billiton wrote off $7.2 billion from the value of its American shale assets in the first step suggesting that the oil “chickens are finally coming home to roost”. Some heavy crudes, such as Mexican Maya, cost less than $20.00; those extracted from Canadian oil sands will sell for $10.00-$15.00 per barrel. In a rough start to 2016, the Saudi Arabian government raised the price of gasoline by nearly 50%.

Bankrolled by oil-rich Qatar, Al-Jazeera America was launched with great fanfare in 2013 with ambitions to rival domestic heavyweights such as Fox News and CNN. Petrol prices have continued to fall with some garages now selling unleaded petrol at below £1 a litre. In addition, global inventories are at their highest level since 1998, and it is easy to conclude that low prices will be with us for some time. The price of a barrel of oil is highly dependent on both its grade, determined by factors such as its specific gravity or API and its sulphur content, and its location.

William O’Keefe is the President of Solutions Consulting.