Allies and Enemies In The War For Oil Market Share

They say that war makes for strange bedfellows or allies, oh that’s politics, I guess the enemy of my enemy is my ally fits just as well.  This weekend, Iran and Venezuela promised to work together to stabilizing global oil prices.  Iran’s supreme leader accused “enemies” of using crude prices as a political weapon.

With President Nicolas Maduro of Venezuela by his side, President Hassan Rouhani of Iran urged members of the Organization of the Petroleum Exporting Countries, or OPEC, to “neutralize schemes by some powers against OPEC and help stabilize an acceptable oil price in 2015.” Mr. Maduro also called for OPEC’s cooperation in stabilizing oil prices. Both Iran and Venezuela rely on oil prices to drive their respective economies. Oil prices have plunged more than 55 percent since June to less than $50 a barrel, placing a severe strain on the two countries. Crude oil declined farther on Monday morning dropping 85 cents as soon as the markets opened touching 47.51 while Brent oil matched crudes decline falling 81 cents to 50.49 giving back the small gains added late last week.

OPEC heavy weight Saudi Arabia is bullying OPEC members to join as allies in a war to maintain global market share. The Saudis are losing market share to the US startups and— they’re not happy about it. So they are willing to start an oil price war by flooding the market with gobs of excess crude just to wash away the entrepreneurial upstart Americans.

In the years between 2001 and 2011, the weekly US field production of crude oil measured in the first week of December steadily averaged 5.5 million barrels per week. As of the first week of December 2014, the US is now producing 9.1 million barrels per week. The International Energy Agency estimates that if the boom continues, it will make the US the world’s largest producer by 2015, five years earlier than originally forecast.

OPEC ministers and delegates have blamed non-OPEC producers such as Russia, Mexico and Kazakhstan, as well as U.S. shale and tight oil production, for the oversupply in the market. U.S. oil production has surged from around 5 million barrels per day to reach a near 30-year record of more than 9 million bpd over the past six years, propelled by the sudden emergence of shale oil output from North Dakota to Texas.

Iran and Algeria have both since called on OPEC to cut output in the face of the slide in oil prices. A delegate from Libya, one of OPEC’s four African OPEC members, agreed. Venezuela, Algeria and Iran need oil above $100 to balance their budgets, according to estimates from the IMF and other analysts, higher than the Gulf members who can tolerate lower oil revenues for years.

Goldman Sachs forecasts that if oil stays near its current price, the economy will add 300,000 more jobs this year than if the price had remained at its June level. Stronger job growth is foreseen at retailers, auto dealers, shipping firms, restaurants and hotels.

From gas-station prices to utility bills, consumers and businesses are now enjoying savings on basic energy costs. It means more people can splurge on purchases from clothing and appliances to vacations and dinners out. That stronger demand will likely require some businesses to step up hiring, which would circulate more money through the economy and perhaps fuel further job growth. Many trucking firms are plowing the savings from lower fuel costs back into their businesses. That helps the 4.7 million workers in the transportation and warehousing industries. “They’re actually increasing driver wages,” noted Bob Costello, chief economist at the American Trucking Associations.