[kamme]

To be honest Putin is correct, it are outside factors that are contributing to the decline. For example the US has drastically increased oil production the last few years[1] in order to drop oil prices. Around the end of 2011 oil production really went up, and tensions began to form between the countries. My guess is the US saw the approaching re-election[2] of Putin as a bad move and decided to take action.

Of course I'm not pointing fingers or blaming any side, it's just strange to see history is repeating itself all over again. The news about the NASA budget increase was no surprise for me anyway...

[1] http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MC... [2] http://en.wikipedia.org/wiki/Russia–United_States_relations#...

[jsmcgd]

I don't think the US increased oil production to decrease oil prices. It has had a very successful increase in shale gas production due to new technologies. This has affected the oil prices, and Saudi Arabia in turn isn't liking the competition, so it has massively increased its oil production as a matter of policy. This will eliminate a lot of new, marginally profitable energy producers, across the globe, including Russia. Once they've collapsed, expect the taps to close again. I think the current situation is more of a happy accident for US Foreign Policy. A lot of American producers will be burnt by the current price of oil as well.

[kamme]

Your theory sounds logical, and that action by OPEC would also seem logical.

... but the numbers suggest otherwise. The last few years there is no increase in production by OPEC countries: http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=5&pi...

[saryant]

Saudi Arabia hasn't increased production, but they also haven't decreased production. Within OPEC, the Saudis are supposed to be the swing producer, adjusting their output up and down to maintain price targets. That arrangement has largely broken down as it relied on the other members to respect their quotas. OPEC has found (many times) that when prices drop too far, their members ignore the quotas and feud for marketshare instead.

The Saudis used to keep to their role as swing producer but this time they're letting the rest of OPEC sweat. They've got currency reserves to weather this storm but most of the other OPEC members do not (save for the rich Gulf emirates). The Saudis are trying to teach the rest of OPEC a lesson and bring them back in line.

Couple that with the phenomenal increase in American oil and gas output due to fracking and horizontal drilling and you've got a situation in which two major producers, the US and Saudi Arabia, are flooding the market. Since there's no central authority over American producers, they'll drill whenever the market price will sustain their project. America is unique in that mineral resources are privately held rather than owned by the state, giving private enterprise the incentive to drill as much as possible until the price renders a given well uneconomical.

The end result is that the Saudis have abdicated their role (not for the first time, but this may be the last) and the Americans have picked up.

America is now the world's swing producer. No one saw that coming.

[jsmcgd]

That chart is missing 2014. The latest I've heard is that Saudi keeps increasing supplies:

http://arabianindustry.com/petrochemicals/news/2014/dec/14/s...

[gadders]

Saudi has also increased oil production to put pressure on Iran, with which it competes for regional hegemony.

[jessaustin]

In fairness, USA oil production doesn't have the same sort of "tuning knob" that Saudi or even Russian oil production has. It isn't that government officials play no role, since they can delay permits or employ similar bureaucratic inertia (EDIT: and the bureaucrats in question consider many other values, like the environment, to be more important than international economic strategy), but mostly it's private investors who decide where and how much they will drill. I've heard speculation that the Saudis are currently attempting to burn those private investors and will cut back production after they've been chased from the market. If USA production costs are lower than those in Russia or elsewhere, however, it might be other producers who end up getting chased.

[joshuahedlund]

The increase in US oil production and the resulting price drop has been the result of new discoveries and technology breakthroughs related to shale and fracking, not due to any overt intention by the US government. To suggest otherwise is to imply that US oil companies were deliberately holding back on potential profits by not pumping at full production prior to 2011, which in my opinion is harder to believe (Occam?) than the coincidence of the production increase's effects on US foreign interests.

[personZ]

To suggest otherwise is to imply that US oil companies were deliberately holding back on potential profits by not pumping at full production prior to 2011

Most wells don't run at full capacity, and absolutely alter draw speeds to maximize the life and economics of a well. With the drop in prices many large energy companies with the ability to weather these drops in price will of course turn down the taps, reserving the limited holds of their wells for when the price returns. If you have n barrels of oil in your well, and you're certain the price will return to North of $100, might as well save them for then.

new discoveries and technology breakthroughs related to shale and fracking

Fracking is natural gas. On the shale side, it's worth noting that we've known about shale and how to extract it for many, many decades. The only reason it came into the forefront is that the price of oil on the global market finally made it economical -- shale oil is estimated to cost from $25 - $95 per barrel to extract and process. So the paradox is that the collapse of the world price puts a serious wrench in the shale oil production, which purportedly is the reason for the price of oil.

http://www.nytimes.com/2006/12/21/business/21shale.html?page...

The shale oil industry has had booms and busts before as the price of oil fluctuates.

[throwaway90446]

Most wells don't run at full capacity, and absolutely alter draw speeds to maximize the life and economics of a well.

This is correct, but only to a point. Many producers still lease land for limited timeframes (some of them do have "until we are done" clauses, but this is not the norm in Eagle Ford). If your lease has two years left and you don't expect the price to rebound for 18 months, it's still in your interest to produce NOW, since horizontal drilling (far more expensive than the fracking) is a capital cost you've already paid that you need return on.

[tootie]

The US government doesn't really have the authority to set export levels the way OPEC does. Our exports are up because we have so much shale gas. Obama already nixed Keystone XL and now Gov Cuomo has just banned fracking in NY state. The headwinds are against continued increase in output.

[saryant]

> The headwinds are against continued increase in output.

I don't think that follows. For one, Keystone isn't necessary, the industry will just continue doing what it's been doing: trucking the oil from wells to existing pipelines. Keystone is less expensive and more environmentally friendly but not necessary.

While NY banned fracking, other states have seen their opposition movements collapse, like Colorado, where Rep. Polis' petition was withdrawn and a key senator was defeated (Udall), ostensibly due to his opposition to increased production.

[fennecfoxen]

> To be honest Putin is correct, it are outside factors that are contributing to the decline.

Sure, but the proximate cause of the ruble collapse is the state-backed Rosneft bond offering expanding the money supply to avoid a bankruptcy. (It's a bailout tactic for one of Putin's top cronies).

[brokenmusic]

The problem with sanctions and manipulation of the oil prices by the US is that while trying to get rid of Putin, they're hurting average Russians, not Putin. And something tells me they know it very well.

In a game between politicians, average people are the real losers.

[sgnelson]

To some extent, and based on traditional views of sanctions (I won't get into whether they actually work or not), the point of sanctions is to hurt the average people. Economic and political elites in Russia are still going to have lots of money and access to luxury goods, it's difficult to stop that behavior (especially in a kleptocracy/dictatorship like Russia). But if you hurt the people, the theory goes, then they will get mad at their leaders and demand a change in leadership, thus hopefully leading to a new administration with new policies.

[Thimothy]

Well, the theory has not gone well at Cuba or Iran. If you hurt the people, the leaders will tell them that it's US fault, and the people will get mad at the US, because the leaders control the media and can convince the people of whatever they want. I cannot imagine that in Rusia is going to be any different.

Has ever been any country where this has worked?

[happyscrappy]

>My guess is the US saw the approaching re-election[2] of Putin as a bad move and decided to take action.

US energy independence is unrelated to Russia. The entire Russian economy could go down the toilet and the world would hardly notice. Short of starting a nuclear war Russia is irrelevant at this point. They will have to get along with Europe at some point but a whole generation is now lost.

[kamme]

I'm not saying this is because of energy independence.

It's just that the best way to put pressure on a country like Russia, is by affecting the GDP. Unfortunately for Russia this has proven pretty easy since a big chunk of the GDP comes from oil and gas.