Curious About Bakken Shale Oil Price? Keep an Eye on Russia
Recently, people have been asking me when I expect a recovery in the price of Bakken crude oil. My answer is, "Just keep watching Russia".
Two days ago, the Organization of Petroleum Exporting Countries (OPEC) decided to maintain its production levels for at least another six months, Saudi Arabia's Oil Minister, Ali al-Naimi, told reporters on Friday. OPEC's next meeting is scheduled for December 4th 2015. CNBC Friday, 5 Jun 2015
Iranian hard-liners have accused OPEC of conspiring with the United States to keep oil prices low, to harm the Iranian economy and pressure the country to conclude a nuclear deal. - Voice of America, January 06, 2015 And President Vladimir Putin has accused some of Russia's "quasi-partners" on of counting on the country's collapse by cutting its banks off from the global financial system at a time when oil prices had plunged by OPEC manipulation.
On Saturday May 30, 2015 Reuters reported that, "Russian military aircraft were scrambled to head off a U.S. warship that was acting "aggressively" in the Black Sea, state news agency RIA" The incident is just the latest example of a series of encounters between Russian and NATO Allies. Whether this is a provocative act by NATO allies or a response to petrol-dollar and economic warfare, may never be know. But as the report states, "tensions continue over the crisis in Ukraine and Russia's annexation of the Crimea peninsula". Earlier this month both Britain and Sweden said that they had scrambled fighters to intercept Russian bombers near their territory. The United States said last month that it was filing a complaint to Russia over a Russian fighter's "sloppy" and unsafe interception of a U.S. reconnaissance plane in international aerospace over the Baltic Sea.
Today, Sun Jun 7, 2015, Reuters reported that, "U.S. President Barack Obama said Group of Seven (G7) leaders meeting in the Bavarian Alps on Sunday would discuss standing up to Russian aggression in Ukraine amid an upsurge in violence there that monitors have blamed on Moscow-backed separatists."
The problem is that Russia's latest budget requires oil prices to average at least $100 a barrel in order to cover the government's spending promises. Falling prices are of particular concern to Russia. Russia needs high oil prices to buoy its economy. The country has seen its economic performance slow under the weight of sanctions over Ukraine and weakening domestic demand. Reuters Oct. 13, 2014
But, "Why is Ukraine so important to Russia?" And an answer might lie in Ukraine's estimated 40 Ukraine’s wheat harvest which is pegged at around 23 million tons annually. Russia best grain production ever was around 90 million tons. So Ukraine represents nearly 25% of Russia's total wheat production in a good year. Russia and Ukraine (including Crimea) are the region's main global grain exporters to supply customers in North Africa and the Middle East. Against the protest of Ukraine and Russia, Crimea had been supplying grain to Saudi Arabia. Russia needs customers for it's agricultural production, which has been the middle east and it needs Ukraine/Crimea for which produces nearly 25% of that production.
Low oil prices hurt everyone including Saudi Arabia because they subsidize grain and foodstuffs for not only their own citizens of 26 million with a growth rate of 2.4% to keep them pacified, but to Egypt's population of 84 million people. Saudi Arabia imports 90% of it's grain. Egypt only produces grain enough for around 40 million and has a growth rate of 1.8%. End of Abundance - David Archibald
Whether anyone would like to admit it or not, tension in the middle east including the rise of ISIS and ISIL are caused primarily by one thing, competition for limited resources by economically and educationally disadvantaged citizens. The secret hidden from the average everyday person in the west, is that citizens in the middle east are nearly totally dependent on the government which depends on oil production to feed its population.
So the answer to world oil prices, and in the Bakken, might be set by Saudi Arabia over supplying demand, but they could ultimately rise due to actions taken,or attributed to, Russia in the Middle East (sponsoring terrorism through Iran) or provocative actions near Ukraine.