**What Russia, OPEC, And The West Want From The New Global Oil Market**
What Russia, OPEC, And The West Want From The New Global Oil Market
_Authored by Simon Watkins via OilPrice.com,_ (https://oilprice.com/Energy/Energy-General/What-Russia-OPEC-And-The-West-Want-From-The-New-Global-Oil-Market.html)
- **OPEC has repeatedly warned of the danger of undermining oil industry investment and has cut production to ensure oil prices remain higher.**
- Meanwhile, the United States has rigorously attempted to keep oil prices lower in order to keep fuel prices down and protect against inflation.
- At the same time, **Russia is fighting to take market share from OPEC producers by helping to push prices higher while selling its oil at a significant discount.**
The recent comment by the Secretary General of the Organization of Petroleum Exporting Countries (OPEC), Haitham Al Ghais, that the International Energy Agency (IEA) should be “very careful about further undermining” oil industry investments highlights the ongoing war between the big net buyers of oil allied to the U.S., and big net sellers of oil in the OPEC grouping. Contemporaneous news that Russia has slashed OPEC’s share of one of the biggest global buyers of oil, India, to the lowest in over two decades also illustrates Russia’s position in the new global oil market order, as analyzed in my new book on the subject (https://www.amazon.co.uk/dp/B0C2RRNWNY).
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Al Ghais’s comment is right in and of itself – the transition from fossil fuels to cleaner energy does need to be carefully managed to ensure no disruption to ongoing global power supplies, and this requires investment. However, the implication in his later comments that oil prices must be above US$80 per barrel (pb) of Brent to allow for such investment is wrong. In many of the leading oil-producing countries of OPEC – Saudi Arabia, Iraq, and Iran – the ‘lifting cost’ (the price of extracting one barrel of oil from the ground, not including capital expenditure) is literally just one or two dollars. With genuine capital expenditure added in then this per barrel extraction lifting cost is around six to eight dollars in these countries. Other countries in OPEC have higher figures certainly, but not by much in most of them.
**The difference between the actual cost of taking a barrel of oil out of the ground and US$80 is mostly accounted for in the government budgets of OPEC countries not by investment in energy infrastructure to sustain future supplies but rather by investment in other state-directed projects unconnected to the energy sector.**
In Saudi Arabia’s case, vast sums of money flowing into its flagship oil company, Saudi Aramco, have been used for many years as funding for what might be regarded as various vanity projects (Neom, to name but one) and socio-economic projects (creating the King Abdullah University of Science and Technology, among many others). This, along with several other toxic elements attached to Saudi Aramco, was the reason why it could not find a reputable international stock exchange to take its initial public offering (IPO) and why it struggled to find Western investors to buy into the IPO. It is understandable why Saudi Arabia uses its chief revenue source to fund such projects, but to include these as being a true rationale for oil prices to stay above US$80 pb is to conflate two separate issues as far as much of the global oil market is concerned.
**On the other side of the oil price equation is the U.S. and its principal economic and security allies both in Europe and Asia.** For these countries that are net importers of oil and gas, sustained oil prices above US$80 pb of Brent, and corollary rising gas prices, mean that inflation will remain higher for longer, which will keep interest rates higher for longer, which will increase the economic damage done to them. For the U.S., these fears have very specific ramifications: one economic and one political, as also analyzed in my new book on the new global oil market order (https://www.amazon.co.uk/dp/B0C2RRNWNY). The economic one is that historically every US$10 pb change in the price of crude oil results in a 25-30 cent change in the price of a gallon of gasoline. For every 1 cent that the average price per gallon of gasoline rises, more than US$1 billion per year in consumer spending is lost and the U.S. economy suffers. The political one is that, according to statistics from the U.S.’s National Bureau of Economic Research, since the end of World War I in 2018, the sitting U.S. president has won re-election 11 times out of 11 if the U.S. economy was not in recession within two years of an upcoming election. However, sitting U.S. presidents who went into a re-election cam…
https://www.zerohedge.com/energy/what-russia-opec-and-west-want-new-global-oil-market