After some initial excitement, November has seen crude oil prices collapse back towards cycle lows amid demand doubts (e.g. slumping China oil imports, overflowing Chinese oil capacity, plunging China Industrial Production) and supply concerns (e.g. inventories soaring). However, an even bigger problem looms that few are talking about. As Iraq - the fastest-growing member of OPEC - has unleashed a two-mile long, 3 million metric ton barrage of 19 million barrel excess supply directly to U.S. ports in November.
Crude prices are already falling:
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But OPEC has another trick up its sleeve to crush US Shale oil producers. As Bloomberg reports, Related: Can Russia Withstand Saudi Onslaught In The European Oil Market?
Iraq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to U.S. ports in November,ship-tracking and charters compiled by Bloomberg show.
Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures.
The cargoes show how competition for sales among members of the Organization of Petroleum Exporting Countries is spilling out into global markets, intensifying competition with U.S. producers whose own output has retreated since summer. For tanker owners, it means rates for their ships are headed for the best quarter in seven years, fueled partly by the surge in one of the industry’s longest trade routes. Related: IEA Sees No Oil Price Rebound For Years
Worse still, they are slashing prices...
Iraq, pumping the most since at least 1962 amid competition among OPEC nations to find buyers, is discounting prices to woo customers.
The Middle East country sells its crude at premiums or discounts to global benchmarks, competing for buyers with suppliers such as Saudi Arabia, the world’s biggest exporter.Iraq sold its Heavy grade at a discount of $5.85 a barrel to the appropriate benchmark for November, the biggest discount since it split the grade from Iraqi Light in May. Saudi Arabia sold at $1.25 below benchmark for November, cutting by a further 20 cents in December.
“It’s being priced much more aggressively,” said Dominic Haywood, an oil analyst at Energy Aspects Ltd. in London. “It’s being discounted so U.S. Gulf Coast refiners are more incentivized to take it.”
So when does The Obama Administration ban crude imports?
And now, we get more news from Iraq:
• *IRAQ CUTS DECEMBER CRUDE OIL OSPS TO EUROPE: TRADERS
So taking on the Russians?
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Finally, as we noted previously, it appears Iraq (and Russia) are more than happy to compete on price... and have been successful - for now - at gaining significant market share... Related: Can Fuel Cells Help Clean Up China’s Air?
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Even as both Iran and Saudi Arabia are losing Asian market share to Russia and Iraq, Tehran is closely allied with Baghdad and Moscow while Riyadh is not. That certainly seems to suggest that in the long run, the Saudis are going to end up with the short end of the stick.
Once again, it's the intersection of geopolitics and energy, and you're reminded that at the end of the day, that's what it usually comes down to.
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If it cost $60/barrel to produce oil here and Saudi Arabia is driving the price to $40/barrel; then we should be collecting $20/barrel tax on their imports. This will make our producers competitive and provide income to the Federal government that they don't get from imports but do charge local producers.
The USA has to wake up and stop being a dumping ground for China, Saudi Arabia and anyone else we have a large imbalance between imports and exports.