Politics Secondary Factor in US-Saudi Arabia Oil Game

© Fotolia / marrakeshhOil markets were negatively affected by Saudi Arabia's decision to cut prices for January deliveries to US and Asian customers.
Oil markets were negatively affected by Saudi Arabia's decision to cut prices for January deliveries to US and Asian customers. - Sputnik International
According to international experts, political agenda was not a primary factor in OPEC's recent decision not to cut oil prodiction.

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MOSCOW, January 16 (Sputnik), Svetlana Alexandrova — Politics is far from being the most important factor in the recent decision made by the Organization of the Petroleum Exporting Countries (OPEC) not to cut oil output; it is really just about the money, international experts told Sputnik news agency.

"I see no political agenda as a primary factor in the decisions made by countries, particularly Saudi Arabia and the United States," a Director of Labyrinth Consulting Services in Texas Arthur Berman told Sputnik on Thursday adding that the Saudis may have made the decision as Russia refused to join them in November of last year.

When OPEC decided not to cut oil production in November, despite sliding prices, international media began questioning Saudi Arabia and its motives as in the past the Kingdom used to step in and slow production in order to bring prices up.

"Faced with the painful choice of losing money maintaining current production at $60 a barrel or taking 2 million barrels per day off and losing much more money was an easy choice: take the path that is less painful," the expert explained adding that if there were secondary reasons like hurting the US shale producers or Iran or Russia, "that"s great, but it"s really just about the money."

Energy and Middle East Scholar at the University of Oxford Justin Dargin, who has significant experience in the Gulf energy and power sector, agreed and pointed out Saudis Arabia"s unwillingness "to budge" while continuing to produce 30 million barrels per day showed they were "hoping to achieve their long term goals of taking the US shale industry off the market."

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Since oil prices started falling, numerous reports have circulated in the US media about how the US shale plays can break-even at whatever the latest lowest price of oil happens to be.

"Doesn"t anyone realize that the investment banks that do the research behind these articles have a vested interest in making people believe that the companies they have put billions of dollars into won"t go broke because prices have fallen," Arthur Berman stated in his blog adding that this is total propaganda.

"When we take the costs of all the wells in the core of the Bakken Shale play, located in the US states of North Dakota and Montana, […] we get a break-even West Texas Intermediate oil [WTI] price of $80-85 a barrel," Berman underlined.

Oil prices became a hot topic once again when West Texas Intermediate (WTI) that is the US oil pricing benchmark, fell 2.4 per cent on Monday to below $45 per barrel, the lowest price since April 2009. Back in June prices were above $100.

Justin Dargin explained that normally oil prices move up and down in response to changes in supply and demand. If the world consumes more oil than it produces, the price goes up. If more oil is produced than the world consumes, the price goes down. That's where we are right now.

According to Arthur Berman, there is nothing especially different about this latest oil-price fall compared to any of the others except the end of a period of quantitative easing (QE), which is a monetary policy used by the US Central Bank to stimulate an economy when standard monetary policy has become ineffective.

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"It's not really about shale or the Saudi decision not to cut production," Berman said stressing that "it is more of a relatively ordinary oil-production surplus that happened at the same time that the QE ended in July 2014."

"World oil prices are denominated in US dollars so the more the dollar is worth, the lower the price of oil and vice versa," the US expert stated explaining the connection between this unconventional monetary policy implemented by the United States and oil prices.

"When the US Federal Reserve System started printing money like crazy after the crash in 2008, the value of the dollar was kept artificially low compared with other currencies," Berman wrote in his blog adding that "the ever-weakening US dollar simply dampened the impact of production surpluses and deficits on the price of oil."

He believes that near the end of 2015 world oil prices will recover somewhat due to OPEC and Russian cuts after the meeting in June and increased demand because of lower oil prices. "I do not believe that oil prices will remain low for years," Berman said adding that he expects a recovery to an average price of perhaps $50-60 a barrel. In turn, Justin Dargin noted that that the price would go up at the end of 2015 but wouldnot return to $100 a barrel level any time soon.

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