Oil

Quartz correspondent LeVine talks pricing forecasts, geopolitics of production

How are declining oil prices affecting U.S. industry's production plans? During today's OnPoint, Steve LeVine, Washington correspondent for Quartz and an adjunct professor at Georgetown University, discusses the impacts of oil price instability and gives his perspective on the role Saudi Arabia is playing in the current pricing climate.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint, I'm Monica Trauzzi. With me today is Steve LeVine, Washington correspondent for Quartz. Steve's work focuses on the intersection of energy technology and geopolitics. He's also an adjunct professor at Georgetown University. Steve, thank you for coming on the show.

Steve LeVine: Thanks for having me.

Monica Trauzzi: Steve, lots of debating here in Washington on why oil prices are as low as they are and what the long-term impacts will be. As of Monday morning oil prices have fallen below $80 per barrel. What do you identify as the top reasons for the current price?

Steve LeVine: Oversupply. So there's a surprising volume of U.S. oil shale on the market over the last three years. So since the Arab Spring, 2011 Arab Spring, a lot of oil went off the market, just geopolitical disruptions of various types, but over the last five months, since June, Libya has come back on the market gangbusters. That volume then plus a million barrels a day this year from the United States put the market over. The type of oil it is, a light oil, and where it is right in the Atlantic basin has pushed Saudi Arabia and other OPEC producers out of that market, forced them all into Asia and they're competing against each other in this undiversified market.

Monica Trauzzi: Right. So how much control does Saudi have over the price decline and potentially reversing the current trend?

Steve LeVine: Not much. So, again, Saudi is producing a heavier oil so it does not compete directly with the types of crudes that have gone on the market. Libyan is light, U.S. is light, and so it can't compete directly. In addition, the surplus that's come on the market is larger than the extra oil that the Saudis could take off the market. And so that balances -- it knows it can't fight city hall, basically, and so what it's decided to do is to secure market share and what it's done over a two-month period it's dropped its oil price.

Monica Trauzzi: So who needs to be cutting production then to balance things out? What countries?

Steve LeVine: Right. So OPEC next month is going to meet. It's going to vote in its meeting in Vienna. It has to take 800,000 barrels a day off the market. It won't. So we're going to have, it looks like we're going to have these kinds of low prices one year, two years.

Monica Trauzzi: Is there a certain point that you consider the absolute point at which production needs to be cut, or have we already passed that?

Steve LeVine: That needs to be cut in order to reverse this price plunge, right?

Monica Trauzzi: Yeah.

Steve LeVine: I think it's 1 million. One million barrels a day. What the optimists hope is that the oil price falls enough that American shale oil drillers themselves will stop producing oil. But if you look at the history of shale gas, shale gas prices plunged through the floor, they kept being forecast that there are going to be gas is going to be taken off the market. And a lot of rigs were pulled off the market but the drillers became more efficient. So the volume of gas has kept going up despite low prices.

Monica Trauzzi: So how long do you anticipate we could continue to see the low prices and, you know, I know there's the OPEC meeting coming up, but what do you see for the next, what do you forecast for the next three or four months?

Steve LeVine: This is a loser's game to forecast.

Monica Trauzzi: Yeah, of course.

Steve LeVine: However, we have had two big banks come out over the last couple of weeks. We had Citi and then most recently we had Goldman come out, both of them are expecting long-term low prices of about $90 a barrel. That's 22 percent lower than the price in June. So countries like Venezuela, Iran, Russia that require a lot higher prices to break even are going to be in political trouble and the producers in the Middle East that require higher oil prices to keep their people off the streets are in the same kind of trouble.

Monica Trauzzi: And what is U.S. industry going to start doing over the next few months to deal with this?

Steve LeVine: You know, it depends who you talk to, but I think that the compelling arguments that I'm seeing is that this is going to go on for some time. Shale oil drillers will, some of them will pull off production, but the low-cost drillers will become more efficient over time. They'll become more productive. I don't see the volume dropping. I think we're in this environment for some time. It's a very interesting market.

Monica Trauzzi: Yeah, this will be interesting to watch. Thank you for coming on the show.

Steve LeVine: Sure.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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