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What We Read Today 24 December 2014

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.

Shale and the Falling Price of Oil (Joe Nocera, The New York Times)  The last time the price of oil went to extremes (2008) Saudi Arabia tried to lead production changes to dampen the swings.  Nobidy followed and oil shot up to $147 and then crashed to less than $40.  In the current boom and bust the Saudis are taking a different tack to avoid being seen as an "emperor with no clothes".  Nocera says that the Saudis do not fear competition from shale oil; shale produces a different type of oil (light tight oil vs. middle eastern heavy oil).  (Note:  Other producers also have heavy oil, Venezuela and Russia for example, although Russia is believed to have major light oil reserves as well.)  Nocera says that the Saudi's real targets are Iraq and Iran.  More articles below on the current oil wars.

Why Saudis Decided Not to Prop Up Oil (Jay Solomon and Summer Said, The Wall Street Journal)  Repeated from discussion 'behind the wall (premium content) yesterday.  The authors have a diametrically opposed view compared to Joe Nocera in the previous article.  They argue that the target for the Saudi price war is only North American fracking production and that Russia, Iran, Venezuela and others who are suffering economic distress are merely collateral damage.  But what if the American fracking technology is evolving to a $40 or even lower profit point for production.  Could the Saudis actually lose the price war they so confidently started?  More on oil 'behind the wall' (premium content) The conclusion of this rather long article:

There remains a risk prices don’t quickly recover. Some in the Saudi media have criticized Mr. Naimi for a policy they say could be disastrous for the kingdom’s economy. Riyadh depends on oil for 90% of its budget.

All OPEC and non-OPEC officials are in a state of shock,” said Muhammad al-Sabban, a former adviser to Mr. Naimi, adding that a “ ‘wait and see’ is their only option.”

Understanding Tight Oil (Canadian Society for Unconventional Resources)  This is a great summary of the recovery locations and processes for tight oil in North America (upper left corner in graphic below) but conventional "sweet" crude (like the U.S. benchmark WTI - West Texas Intermediate) produced by "old fashioned" vertical drilling is largely ignored, as are the "heavy oils" in North America (and the rest of the world as well).

oil-north-america-types-csur-2014 


Fed Caused Oil Crash, Stocks Next and Gold to Shine (CNBC, YouTube)  Peter Schiff on CNBC 16 December 2014.  Scott Nations appears on the following video and says "Peter, I give you credit if for nothing else for being consistent."     

schiff-gold-cnbc-2014-dec-16


Articles about events, conflicts and disease around the world

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Ukraine

Russia

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