OPEC members under stress to stabilize prices

Bloomberg/Fuel Fix:

Here’s why the U.S. shale upstarts just might win a confrontation with Saudi Arabia as oil sinks: While the Arab nation is as flush with cash as ever, the finances of some fellow OPEC members are deteriorating quickly.

Venezuela, for example, has burned through billions of dollars, leaving its foreign reserves near a decade-low, to stave off default. In Nigeria, officials are struggling to stem a selloff in the currency that has left it at a record low.

Those financial strains have Venezuela calling for action to prevent further declines in oil prices while a Libyan representative said the 12-member Organization of Petroleum Exporting Countries should cut its output target. When executives at American shale companies talk about having more staying power in a price war than some of the Saudis’ partners, these countries, along with places like Ecuador and Iran, are the key weak links in question.

“Saudi Arabia and the oil-rich Gulf monarchies can afford to take the long-term remedy as they have enough cash reserves,” Theodore Karasik, senior adviser at Risk Insurance Management, said by phone from Dubai yesterday. “Libya and Venezuela, on the other hand, need a quick intervention by OPEC.”

Brent crude, the international benchmark, plunged 29 percent since June to $82.54 a barrel today as the shale boom lifted U.S. production to the highest in at least 31 years and global demand slowed. At this price only Kuwait, Qatar and the United Arab Emirates will earn enough to balance their budgets, while Iran, Iraq and Algeria need at least $100, the International Monetary Fund said in a November 2013 report.

Shale oil drillers will be hurt by the fall in crude prices before members of OPEC because their costs are higher, said the group’s secretary-general, Abdalla El-Badri. As much as 50 percent of tight oil output will be “out of the market” at current prices, he said at a conference in London Oct. 29.

Executives at several large U.S. shale producers, including Chesapeake Energy Corp. (CHK) and EOG Resources Inc. (EOG), vowed to maintain, and even raise, production as they reported earnings this week. They say their success in bringing down costs means they make money even if prices slump further.
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The South American socialist regimes like Venezuela and Ecuador have based their budgets on the high priced crude and because they are socialist, they lack the flexibility to adjust expenditures.  Nigeria has a built in corruption cost to its operations that makes it difficult for that country to compete at lower price points.   Libya has turned into a North African basket case since the Obama-Clinton screw up that empowered the Islamist.  The interest of these countries is divergent from other members of Opec.

The US shale operators appear to be getting more efficient and lowering their cost of operations and whatr is really scary for these weak sisters of OPEC is the potential of US exports of crude.  This would also be strategic blow to the Russians who use oil to finance their aggression in Ukraine and elsewhere.