Originally published in MNP's Oilfield Service News on December 2, 2015.
It has been a year since OPEC made the decision to abandon its historic role in global crude supply management and “let the market decide.” Millions of words have been written speculating why Saudi Arabia – the world’s only true swing producer – made the decision to trade volume for price. No one knows for sure what will happen at this year’s meeting, thus the outcome of the pending OPEC chinwag remains unknown.
Obviously, the Saudis will be making a statement of some sort to the assembled members and delegates. Here are the highlights on what Saudi Arabia – and to a lesser degree its colleagues in the Persian Gulf – have accomplished in the past year
- At a $US40 a barrel oil price below last year’s levels, the world’s oil producers have transferred approximately $US1.4 trillion from oil producers to oil consumers. Few, if any, oil importing countries have thanked anyone.
- Every oil producing jurisdiction in the world has endured severe financial difficulty. Several OPEC members, struggling with severe fiscal challenges, are wondering if OPEC actually still serves any useful purpose and are adamant the cartel must cut output.
- Hundreds of thousands of oil workers around the world have lost their jobs.
- Investors in publicly traded E&P and OFS companies have lost hundreds of billions, if not trillions, of investment dollars.
- Lower oil prices have proven markets for crude remain elastic. Demand for oil has jumped by 1.6 million barrels per day or more this year, with similar results predicted for 2016 if low prices remain.
- It is ironic the OPEC meeting is occurring at the same time as the PCCC summit in Paris. As delegates from around the world meet to figure out how to consume less carbon-based fuel, the Saudis have ensured renewables remain uneconomic and crude oil will retain significant market share in the global energy mix.
- Hundreds of billions of dollars of new oil development projects have been postponed or cancelled globally. This sets the stage for a massive crude price spike in the future when all the gains cheap oil have contributed to the economy will be reversed.
- Saudi Arabian cash reserves have been diminished significantly, as is the case for the financial cushion of every major oil producing jurisdiction in the world. This includes Alberta and Norway. Only high oil prices will replenish them.
So when the Saudis address OPEC, it will be interesting to hear what words they choose to describe what has happened the world oil industry in the past year as successful. This situation is simply not sustainable.