OIL: The Saudi/Russia Feud Unraveled

In the midst of the Coronavirus panic, Saudi Arabia and Russia decided to defy OPEC and refuse to abide by their demand that output be curtailed as a consequence of tanking demand in China.   The media has varied responses speculating on the reasoning behind the feud; some claim it is between the two countries, others believe it is a strategy to tank the US shale output, and others think it is a purposeful attempt to tank the global economy.

And in the trajectory of ‘follow the money’ who would gain from this sudden denouncement of OPEC?

Currently, Venezuela, an initial signatory to the OPEC agreement has virtually zero output given it’s economy is in the Socialist twalette.   Iran’s output has suffered from sanctions and now the coronavirus.   Syria is being destroyed once again, this time by Turkey.  Other countries are being massacred by Al Shabaab, and still others are simply changing course toward renewable energy.

There are 14 countries that comprise OPEC;  Algeria, Saudi Arabia, Kuwait, UAE, Nigeria, Venezuela, Conga, Libya, Iran, Iraq, Gabon, Angola and Guinea – former members include; Ecuador, Indonesia and Qatar. Former members and others have already begun the shift to renewable energy sources.   The top five countries producing oil include; US, Saudi Arabia, Russia, Canada and China, only one of which is subject to OPEC.   Thus when OPEC demands member countries reduce output, the member hit the hardest is Saudi Arabia, while its competitors can ramp up production because they are not members of OPEC.

In essence OPEC has outlived its usefulness and will likely become obsolete in the near future. Weeding out the weak means eliminating smaller companies through price deflation as they haven’t the means to absorb the losses.   Both the Saudi’s and Russia claim they can hold a $25 per barrel price…   which is highly skeptical, but will play out nonetheless.   The consensus is that these countries want the price of oil to be aligned as a basic market flux like every other commodity in the world.   Price fixing thru creative shortages and creative oversupplies manufactured by OPEC are being purged.   The short term will see reactionary destabilization. But longer term, the five power houses will survive.

Oil output will be consolidated among the few, and renewables will enjoy the new future as Black Gold.

Currently the top renewable sources include: solar, wind, hydroelectric, hydrogen, geothermal and biomass.   Within those sources, wind has recently been found to be costly and a landfill nightmare given the turbines are made from plastics (oil) and steel.   Solar is specific to location.   Hydroelectric utilizes precious water supplies that are dwindling.   Biomass is attempting to diversify from it’s wood source, but its future looks a bit rickety given the destruction of valuable forests.

Geothermal requires extensive drilling given it is found in the earth’s core, thus hydrogen would seem to have the most potential and given it is found in abundance – the opportunity plays equally to all.

There is no naturally occurring pure hydrogen and thus it must be extracted from its source. Hydrogen is typically produced through oxidation of methane or coal gasification and burns clean.  But future methodologies are likely a massive science effort.

Still, it appears the many, including the Greens, are oblivious to all the other uses of oil outside of fuel.   There are literally hundreds of products made from petroleum including; cosmetics, dresses, vitamin capsules, tires, nail polish, upholstery, shoe polish, panty hose, deodorant, purses, denture adhesives, artificial limbs, anesthetics, refrigerators, guitar strings, shoes, lipstick, house paint…   the list is exhaustive

Out of every 42 gallon barrel of oil, 22.6 gallons are used in the production of products other than gasoline!   That would account for 54% of all oil…   Oil isn’t going to go away. But cheaper oil will trickle down the end price of all these products for consumers.  That may be actual goal as it would then make the costs more competitive against China.

It is the Bigger Picture.  

While every Industrial Revolution comes with gains – it also comes with pains.   Pains for the obsolete.   But ultimately, those pains are absorbed and new technology is the mainstay.   The horse shoeing market certainly isn’t what it was a couple of centuries ago…  People adapt, evolve and learn.

And thus, it could be that the entire Saudi Arabia/Russia feud is actually nothing more than a shift, a shift that was a necessary evolution with absolutely no demonizing intent at all.

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