Oil tankers are loaded with crude in Corpus Christi, Texas, in December. The area has prospered in recent years due to the energy boom in the Eagle Ford shale formation, but falling prices could test that. EDDIE SEAL FOR THE WALL STREET JOURNAL
“Did you know there’s an oil war? And the war has an objective: to destroy Russia,” said Venezuelan President Nicolas Maduro in a live television speech last week. “It’s a strategically planned war … also aimed at Venezuela, to try and destroy our revolution and cause an economic collapse. It’s the United States that has started the war,” Maduro said, and its strategy was to flood the market with shale oil and collapse the price.
Russia’s President Vladimir Putin agrees. “We all see the lowering of oil prices,” he said recently. “There’s lots of talk about what’s causing it. Could it be an agreement between the U.S. and Saudi Arabia to punish Iran and affect the economies of Russia and Venezuela? It could.” The evil Americans are at it again. They’re fiendishly clever, you know.
We are hearing this kind of talk a lot these days, especially from countries that have been hit hard by the crash in the price of oil. Last Thursday, Brent crude hit $55 per barrel, precisely half the price it was selling for last June. The Obama administration’s announcement last week that it is preparing to allow the export of some U.S. oil to foreign markets may send it even lower (U.S. crude oil exports have been banned since 1973).
Countries that depend very heavily on oil exports to make ends meet are obviously going to get hurt when the oil price collapses. President Putin, who has let Russia get itself into a position where more than half its budget revenue comes from oil and gas sales (some estimates go as high as 80 percent) is in deep trouble; the value of the ruble has halved, and the economy has already slipped into recession.
Venezuela, where government spending is certainly more than 50 percent dependent on oil exports, is in even deeper trouble and, like Putin in Russia, President Maduro of Venezuela sees this as the result of an American plot. Various commentators in the West have taken up the chorus, and the conspiracy theory is taking root all over the developing world…
This is absurd to any person with two brain cells to rub together: the fall oil prices is hurting the US (and Canada) too. The high cost of extracting oil from shale and from the oil sands cannot compete with the low cost of the Gulf States.
Headline from this morning at The Wall Street Journal: Plunging Oil Prices Test Texas’ Economic Boom — Downturn Has Many Wondering How Lone Star State Will Weather a Bust: “Now that oil prices have plunged nearly 51% from their June peak to $52.69 a barrel, some Texans sobered by memories of past energy busts are bracing for a fall. The argument among economists and business leaders isn’t whether the state will be hurt, but how badly.”
Meanwhile, prices continue to fall, below the $50 mark:“The oil glut is likely to increase, said Morgan Stanley , as new production will also continue to ramp up at a number of fields in West Africa, Brazil, the U.S. and Canada. Many of these projects were well under way before prices fell.”