Why the US and Britain can not get the Arabs to increase oil production

Hello ATS!

It may seem completely illogical, but the US is trying with carrots and sticks to convince the Arabs (and the whole of OPEC +) to produce more oil, while the Arabs (like the whole of OPEC +) are in no hurry to sell additional barrels.

It is difficult to imagine a capitalist who would be begged to sell more goods, but he himself would refuse. So why are the oilmen refusing?

Everything is very simple. The revenue from the sale of any product can be described by the simplest formula:

Revenue = volume x price

That is, you can increase revenue either by selling more goods, or by raising prices.

At the same time, raising the price is much more profitable, because it does not lead to an increase in operating costs. If it's hard to explain, here's a simple example.

There is a farmer in the market who sells potatoes. This year he sold 1 ton and earned $2,000. What does he need to do to earn $4,000 next year?

There are two options:

Sell ​​2 tons of potatoes
Double the price of potatoes
In the first case, he will have to sow a twice as large field, buy twice as much fertilizer, fill the tractor with twice as much diesel fuel, and so on. That is, his expenses will rise if he wants to increase the volume.

But if he stupidly raises the price, he won’t have to do anything extra at all. He will sow the same field, but will receive 2 times more money: profit out of the blue.

The Arabs and everyone in OPEC+ think the same way. Why would they sell twice as much oil, if it is possible, on the contrary, to sell little oil, but at twice the price?

Now oil costs 120 dollars. If the Arabs increase production, oil prices will fall to 60 (conditionally). And what is their interest? Work twice as hard to get the same money? Buyers of oil, but not sellers, will benefit from this scheme.

In addition, do not forget that oil is an exhaustible resource. That is, it will end sooner or later. That is why it is better for oilmen to sell little, but very expensive. So oil will last for many years.

Well, it’s also worth noting that “increasing oil production” is not the same as opening the faucet harder in the kitchen at home.

To produce more oil, you need to invest a lot of money in it. We need to engage in exploration, drill additional wells, build additional towers, oil pipelines, ports. Build additional tankers (what additional oil should be transported on?).

In short, the costs are gigantic and the market is unpredictable. The Arabs will spend 50 billion to increase oil supplies, and a year later Biden will make peace with Putin. And what should they do with this extra infrastructure? Sell ​​for scrap metal? In addition, an increase in oil production will lead to a decrease in its cost, which is what the United States is seeking, Biden wants to pull off the same option that Reagan did in the 80s with the USSR. But now the United States is not the same, and Russia is not the same, and the Arabs are not the same. The West has weakened, Russia has strengthened, and the Arabs are losing a lot of money on this option, since the operating costs of extracting additional oil will be at a loss for them.

In short, it’s worth acting carefully here and no one in OPEC + wants to dispose of their main resource thoughtlessly, just to save the US and British economies. They would save themselves in the impending crisis.

Well, more. In fact, it's not the price of oil that has risen, it's the purchasing power of the dollar that has fallen. That is, an ordinary person can now buy much fewer goods and services with their dollars earned by their labor. In reality, the purchasing power of the dollar is falling, while the purchasing power of other currencies, such as the ruble and the yuan, is growing. Yes, the US government goes to great lengths to prevent ordinary people from realizing this using statistics. US inflation statistics do not officially include increases in fuel and electricity prices. But the growth in the cost of goods that are key to people is precisely based on the growth in the cost of energy. Yes, this increase in cost is indirectly included in inflation through the increase in the cost of goods and services due to the increase in the cost of energy. But not directly, but secondarily. This is such a stupid deception.

Due to the fall in the purchasing power of Western currencies, a paradox occurs for the Western layman. For example, the price of oil and, accordingly, gasoline in Russia remains at the same level or decreases for ordinary consumers, while in the West it is growing and very seriously. Thus, it is more profitable for the Arabs to switch to trading in more stable currencies, the ruble and the yuan, thereby preserving and increasing their profits and capital.

I am not an economist, I tried to describe the situation to you from the point of view of a simple layman.

Thank you.

a reply to: RussianTroll

It may seem completely illogical, but the US is trying with carrots and sticks to convince the Arabs (and the whole of OPEC +) to produce more oil, while the Arabs (like the whole of OPEC +) are in no hurry to sell additional barrels.

Old news.

New news.

DUBAI/LONDON/RIYADH, June 2 (Reuters) - Saudi Arabia and other OPEC+ states agreed to bring forward oil production rises to offset Russian output losses to ease surging oil prices and inflation and smooth the way for an ice-breaking visit to Riyadh by U.S. President Joe Biden.

OPEC+ said it had agreed to boost output by 648,000 barrels per day (bpd) in July - or 0.7% of global demand - and a similar amount in August versus the initial plan to add 432,000 bpd a month over three months until September.

The move will be seen as a sign of willingness by Saudi Arabia and other OPEC Gulf nations to pump more after months of pressure from the West to address global energy shortages worsened by Western sanctions on Russia.
www.reuters.com...

a reply to: RussianTroll

Nice analysis and analogy RT and thanks for this thread - quite intelligent and the sort of contribution that makes me respect you even if I disagree with you on other topics.

I wouldn’t go as far as saying the rouble and yuan are more stable than the dollar though....maybe in a particular and short window of history but not overall.

Whilst the West is is experiencing what may seem to be a decline in power as we accommodate and provide charity to the rest of the world, I wouldn’t count us out just yet. I say that not in a chauvinistic manner but as an observation.

a reply to: gortex

Promise does not mean marriage

Latest news.

a reply to: IAMALLYETALLIAM

Thank you. I just expressed my point of view.

The biggest reason is the OPEC states have spread their money and investments in the US, UK and the West in general. They can only go so far with this subtle threatening otherwise their stae in the western world will cost THEM more in the long run

Take them as they are, they have billions (no matter what currency) so what good is any of that to them if the West don't play their game. They can sit in their palaces and do what?

It's a certain fact Russia and China do not want anything to do with them, so the West is their only playground and with what they have done by spreading their evil, vile practices in Western countries (another thing Russia or China wont allow) the sooner their oil, and therefore their influence, runs out the better.

a reply to: RussianTroll

They're not going to start increasing production until next month but the agreement has been made so prices will start to come down in the coming weeks.

originally posted by: gortex
a reply to: RussianTroll

They're not going to start increasing production until next month but the agreement has been made so prices will start to come down in the coming weeks.

That's when they start, if they start and in what volumes they start, then we'll talk))))

a reply to: RussianTroll

The US could increase it's own oil production it does not want to, simply too much profit for the big oil producers in the US and other nations to have it any other way, cheap Russian oil was a bit of a bane to them because it pushed oil and gas prices down.

However Russia shot itself in the foot, most nations would rather face the hardship of having to pay more for there oil until we fully transition away from it than have Russia putting a stranglehold on supplies that keep's those nations in Russians supply sphere in thrall to it.

Russia could have played fair but that was never on the table.

The Opec nations hold monopoly especially since the likes of the UK sold off our own oil and gas to private company's and Russia also getting ostracized for it's actions and Russian oil being excluded from the international market also suit's them as it allows them more control over the price of crude.

Also remember that while Russia may still have a vast market in China it will not be able to sell at full price to them especially when they become it's sole export route and customer, China will probable resell oil and there may be one or two small markets that will welcome it such as North Korea but overall it will cost the Russian economy in the long run unless it returns to a self sufficiency model (which failed during communism and will fail today as well).

There will be black market routes though, Turkey was a black market route for ISIS stolen oil for example and I would not put it past them to find a way to capitalize upon black market Russian oil.

The whole thing is a sad state of affairs, everyone suffers except the elite of the elite but when was it ever different.

I really wish we could just get back to business as usual but sorry Russia was playing unfair so it can't expect the other players to sit at the table while it keep's changing the rules to suit itself.


Regardless of US international policy's you do know right that they could produce more oil themselves, enough if they wanted to that they could stabilize oil prices and keep them low themselves but they do not want too.

They like many want them HIGH, anything else is just window dressing for the international and home public, the ones really calling the shots are the corporate heads of the oil cartels and OPEC WILL play along with them so long as it is in there interests (meaning as long as they get there piece of the pie).

But as I say Russia was not playing fair either.

a reply to: LABTECH767

I am very funny. It is the West and the United States that are imposing an embargo on Russian oil and gas, banning its import wherever it can, banning its transportation and tanker insurance. Naturally, the amount of oil on the market decreases, and the price rises.
You have a very strange, I would even say perverted logic. The embargo is introduced by the West, but for some reason Russia is to blame.
So who shoots in his foot?)))

a reply to: RussianTroll

Look the war is an excuse regardless of who is right and who is wrong and Russia made a mistake strangling it's own supply which then forced other players to decide to leave the table.

The whole international oil cartel is basically above the law, they get away with murder at times and for example we in the UK being an island are no stranger to oil company's ripping us off and capitalizing on oil prices to push them even higher, we have on occasion had oil tankers with huge cargo's told to sit off the coast and wait until petrol prices got even higher so that there owners could make even more profit from there cargo's.

Our greatest enemy though was not one without but one within and sadly most of our people forget we used to own our own oil production and had energy security until the 1980's when Thatcher sold it all off.

This is just another crisis, we have seen them come and go and every time someone, somewhere got mega rich by exploiting or artificially inflating the oil shortage.

a reply to: LABTECH767

Do not confuse soft with warm.

The West waged hundreds of times more wars than Russia, but there was no such situation with oil and gas. In addition, the oil and gas crisis began even before the operation in Ukraine. The excuses are pathetic. Blame Western politicians and leaders who have long since degraded.

Everything is very simple - the West wants to destroy Russia by any means. But it doesn’t work, sanctions hit the West more than Russia. Moreover, Russia in May 2022 received oil and gas revenues 2 times more than in the same period in 2021.
Who shoots who in the leg?

a reply to: RussianTroll

I really don't think the west wants to destroy russia. On the contrary, we just want Russia to embrace european ideals like france and Germany. That said, its not in their best interest. As a Russia I wouldn't either actually. However I am an american, and as an american, if Russia embraced European/American democracy and government, then we could do more business with them, again though, its not in Russia's best interest . That said, the west is slowly making in roads into Eastern Europe, as well as re-establishing connections to Africa. I think the USA has buggered up South America well enough, so that will be a while, however the USA is slowly making a transformation from a white dominant society to a multicultural/hispanic one. Many states are already predominantly hispanic. As a result, I see us in 100 years, moving to a predominantly hispanic culture. Eventually, this will align us with the rest of americas. Bottom line, given enough time, things will change. Ukraine joining EU and NATO for example, may be the push for Serbia, Moldova, which in turn could lead to Belarus, and eventually Russia. Give it 50-100 years, the landscape today will be very different from the landscape of tomorrow. Just imagine how much things changed in Russia from 1850 to 1950, or 1900 to 2000. In 2122 things will be very different indeed.

Camain

Camain

a reply to: camain

You see, Russia is a separate civilization with its own civilizational values, with its own mentality, with its own development goals, morals and ethics. Russians are watching with horror what the Western countries are turning into with their new values, morality and morality ... or rather, their absence.
What you are suggesting is a primitive takeover. We offer equal cooperation and coexistence. But taking into account mutual interests, honestly and without deceit. And from the West we see a complete deception and attempts to rob. It is sad.

originally posted by: RussianTroll
a reply to: camain

You see, Russia is a separate civilization with its own civilizational values, with its own mentality, with its own development goals, morals and ethics. Russians are watching with horror what the Western countries are turning into with their new values, morality and morality ... or rather, their absence.
What you are suggesting is a primitive takeover. We offer equal cooperation and coexistence. But taking into account mutual interests, honestly and without deceit. And from the West we see a complete deception and attempts to rob. It is sad.

LOL you just described current Russia in a nutshell 😂. Hopefully, you will change your 'peaceful ways' concerning your neighbors 👍

All it would take is for the US to declare only Diesel engines will be produced and sold in the US until EV takes over and that industrial hemp can be grown for hemp seed oil (and other uses) to be used in those Diesel engines and other traditionally petroleum based products. OPEC would be in a “sell it while we can situation” from then on out.

a reply to: Ahabstar

Trying to dictate terms to manufacturers is a very bad idea. All refineries in the US are tuned not to oil, but to a mixture of oils - from light to heavy. Getting light oil is easy, but getting heavy oil is a big problem. There are only 3 manufacturers - Venezuela, Iran and Russia. Guess where the US gets heavy oil))) That's right, from Russia. After the introduction of US oil sanctions, the import of Russian oil almost doubled.
And rebuilding factories is very expensive - it's easier to build new ones.

At least in the U.S., we don't need OPEC to increase output to drive down price. We could increase domestic production, which would create more oil in the market and lower the price.

Simply put: the people making energy policy in the U.S. (i.e. Biden's handlers) don't want cheaper oil.

Cheap oil forestalls the obsessive crusade to make everyone switch to EVs, green energy, etc.

View the sanctions on Russia's energy exports, and the refusal to increase U.S. oil production, the shutdown of the Keystone Pipeline, etc through the lens of a broader initiative to ram rod the adoption of green energy down the public's throat.

Obama's secretary of energy blatantly said that their administration wanted more expensive gas.

None of this is accidental or random. Maybe Biden's advisors are stupid enough to not have simulated what a Russian invasion of Urkaine (and the subsequent oil sanctions, supply disruptions) would do to global oil prices, but I doubt it. If these people were actually concerned about soaring oil prices and the chain reaction on inflation, they would have worked harder on the diplomatic front to broker a peaceful resolution to the Donbass dispute to preempt this conflict. Instead, we had Biden calling Putin a "soulless killer" in the press.

Cheap oil is antithetical to the quest for green energy (which many in Washington DC have invested in heavily).

Is no oil crisis, US do not have an oil crisis all this crap with the gas is a very manufactured crisis by the communist democrats in power to push for green energy and electric cars that actually do not help anything green in the earth.

Yep this gas prices are the gift of the communist democrats in power.

Or anybody forgot the prices at the pump before the senile parrot took was put in the white house.

Exactly. High gas prices are part of a broader strategy by progressives to push their green agenda. The ROI for EV cars isn't very high when you have low gas prices. However, as gas prices increase, EVs become more attractive financially. While the average American is pissed off about high gas prices, progressive elites love high gas prices.

See how Jennifer Granholm laughs off increasing production? Yet we are begging OPEC to do so? Why would we be begging OPEC to do something we can do ourselves?



Biden could drop gas prices tomorrow simply by telegraphing to the markets that the US will be encouraging domestic production and will be removing red tape, bureaucracies, etc. Drill, baby, drill! This was Trumps policy and why gas prices were so low during his term.

If anyone doesn't believe Biden has any impact on prices, then why is he releasing oil from strategic reserves? Increasing supply (production now and in future) lowers gas prices. Everyone knows this. He releases just enough to make it look like he is doing something, but not enough to really reduce prices.

Elections have consequences...