Cheap Crude and Economics

choi

(1) Amy Harder, Obama and Gas Prices Cloud Keystone Future. Wall Street Journal, Dec 24, 2014
(Many analysts say falling US prices boost the argument of Keystone pipeline] opponents that Canadian oil isn’t necessary amid the current global oversupply”)


(2) Russell Gold and Erin Ailworth, 石油生产商遭遇 '囚徒困境.' 华尔街日报, Dec 24, 2014
cn.wsj.com/gb/20141224/ecb105752.asp

, which is translated from

Russell Gold and Erin Ailworth, US Oil Firms Plays a Waiting Game; Everyone wants less petroleum, but nobody wants to turn of the tap first.
www.wsj.com/articles/oil-compani ... oduction-1419358086

My comment:
(a) This report explains, through the use of economics theory “prisoner’s dilemma,” why no producers of crude and natural gas, domestic and abroad, is willing to cut production. I recommend it.
(b) Mentioned in penultimate paragraph, another economics theory tragedy of the commons
en.wikipedia.org/wiki/Tragedy_of_the_commons
(section 1 Lloyd's pamphlet)

does NOT fit the current situation.

choi

(3) Jay Solomon, 沙特为何不减产石油？ 华尔街日报, Dec 23, 2014
cn.wsj.com/gb/20141223/ecb075224.asp

, which is translated from

Jay Solomon, Behind OPEC Decision, a Saudi Fear of US Shale. Wall Street Journal, Dec 22, 2014 (front page).
www.wsj.com/articles/why-saudis- ... p-up-oil-1419219182

Quote:

(a) "In early October, Saudi Arabia’s representative to OPEC surprised attendees at a New York seminar [which was not an OPEC meeting] by revealing his government was content to let global energy prices slide.

"Nasser al-Dossary ’s message broke from decades of Saudi orthodoxy that sought to keep prices high by limiting global oil production, said people familiar with the session. That set the stage for Saudi Arabia’s oil mandarins to send crude prices tumbling late last month after persuading other members of the Organization of the Petroleum Exporting Countries to keep production steady.

"Hard-hit countries like Iran, Russia and Venezuela suspected the move was a coordinated effort between the oil kingdom and its longtime ally, the U.S., to weaken their foes’ economies and geopolitical standing.

(b) Saudi gambit: "Let prices slide to test how long, and at what levels, American shale producers can keep pumping.

(c) "Saudi Arabia is taking a risk by letting oil prices plunge, said Arab, American and European officials. Saudi officials have said their economy can survive at least two years with low prices, thanks partly to the kingdom’s $750 billion foreign-exchange reserves. Arab officials believe many less-efficient producers will be driven out of the market.

"Still, some oil-industry executives said, Riyadh and Mr [Saudi oil minister Ali al-]Naimi may underestimate how technology and the shale-oil boom have fundamentally altered energy markets. Many US companies, they said, can make money or break even with oil below $40.

Note: Take notice that in graphic 2 (titled “Oil Pressure” and headings of two panels, out of three: “Oil prices are falling * * * putting pressure on OPEC economies”), the right panel is about OPEC only. In other words, non-OPEC producers, such as Russia, is excluded.