OPEC “taking advantage of the fire” to cut oil production, how should the world respond?
The Russian-Ukrainian war is still raging, and the most disturbing thing is the world‘s energy market. The war is fought from early spring to late autumn, and winter is just around the corner. This is the season that burns oil and natural gas the most.right at this gate
Two things happened that made things worse or added fuel to the fire: one was that the Nord Stream oil pipeline from Russia to Europe was blown up, and who did it is still a mystery and no one admits; the other is today (October 2019). 5) what happened, OPEC, which accounts for 44% of the world‘s crude oil production, namely the Organization of the Petroleum Exporting Countries (OPEC), which is an alliance of 13 countries in the world‘s major oil-producing countries except Europe and the United States, decided to reduce the output of crude oil. 2 million barrels a day are cut.
What is the concept of OPEC’s decision? That is, OPEC’s daily output is currently reduced by 5%. Well, due to the slowdown of the world economy, especially the Chinese economy due to extreme epidemic prevention, the economy slowed down a while ago, resulting in a decrease in energy demand. The price of gasoline in the United States finally fell a little, and American drivers just felt a little breathless, but OPEC was about to reverse it again.
The problem now is that with the arrival of winter, just when a lot of oil and natural gas is going to be burned, OPEC is here. It says that it wants to stabilize oil prices, which in a sense is a bit of a robbery. You decide to cut production just when you need crude oil the most.
At present, the worst one is Biden, because there is still a month before the mid-term elections in the United States. Voters get stuck as soon as they refuel their cars. After experiencing inflation that has not been seen in 40 years, the vast majority of Americans have not seen it. What happened in the past, so it must have an impact on the election of Biden and the Democratic Party. So now is the time when Biden is most anxious. How to do it? He has been to the Middle East and visited Saudi Arabia. If they want to raise prices, there is nothing Biden can do.
So what does Biden do? What’s up with the world now? Fang Wei believes that there are three strategies, top, middle and bottom.
Best policy: Open up U.S. crude oil production; restart keystone oil pipeline
The best strategy is what Fang Wei has been telling everyone. It is very, very simple. It is to open up and encourage crude oil production in the United States, restart the Keystone Pipeline that was stopped on the first day of Biden’s presidency, and open up the potential of oil production in the United States. and U.S. oil extraction technology.
The oil companies in the United States are no small matter, they are the strongest in the world. At first, everyone thought that the Middle East had the largest oil reserves. Later, it was discovered that Venezuela had the largest oil reserves. Now, the existing oil fields, including those that have been discovered and those that have not yet been discovered, are called possible oil reserves, and all of them are added together. Ranking countries in the world, the United States ranks first in the world with 264 billion barrels of recoverable oil reserves, followed by Russia, Saudi Arabia, Canada, Iran and Brazil.
How did the US jump to No. 1 all of a sudden? It is because the shale oil exploration in the United States and the hydraulic fracturing technology invented in the United States are both miracles. The American oil exploration technology can squeeze oil out of stones. Therefore, a large amount of shale in the United States can extract oil from it, which is called shale oil. The hydraulic fracturing technology invented in the United States is to press water into oil wells to allow oil and natural gas to escape. This could lead to a huge increase in U.S. oil and gas production.
In 2016, the oil production of the United States was 14.8 million barrels per day. In 2020, it will become 18.4 million barrels, an increase of nearly 4 million barrels. The reason is because of the production of shale oil. The consumption of the United States that year was 18.1 million barrels, which was the last year of Trump’s administration, so it has fully formed self-sufficiency in oil and gas, and can still be exported.
Therefore, if the United States wants to do this, it is actually very simple. The best policy is to open up mining. The United States has the world‘s largest reserves and the world‘s largest mining technology. Big oil mining companies such as Exon, Mobil, and Chevron are the world‘s leading oil mining companies. There is oil underground. Obviously, the best strategy is mining.
It is a pity that the Biden administration will not take this best policy because it is politically incorrect. Now the “global warming” or “climate change” that the left wing of the Democratic Party is engaged in, which wants to “save the earth from destruction” has become a politically correct platform for it. Therefore, the exploitation of oil will cause major conflicts within the party. And, even lead to instability within the party leadership. What to do then?
Next policy: extract Venezuelan oil; release 10 million barrels of strategic reserves
What should I do if I can’t do it? He is about to find a way to do it. How much is the next way? This is what has happened now. In the past two days, Biden will go to Venezuela again. What is he doing? Ask the American oil company Chevron to help Venezuela extract its oil. So there are two problems here:
First, although Venezuela’s oil reserves are also very large, its oil quality is not good, which is why Venezuela later drove foreign companies out. . So Biden intends to let Chevron go to Venezuela to help it extract oil, and the United States will spend money to buy it after the extraction.
Fang Wei commented that the absurdity here is that the United States has better oil and does not use it, and does not take it nearby. Because of political incorrectness, it goes to Venezuela to get oil. Does Venezuelan oil pollute the environment? Don’t change the climate? Does it not cause global warming? How is it different from American oil? It’s only worse than American oil. In fact, to exploit Venezuela’s oil will not encounter the problem of “political correctness”. Therefore, this is also considered a strategy for Biden, and it is called the next strategy.
Then this approach is almost entirely a political strategy and political proposition. In the words familiar to friends in mainland China, it is called “I would rather socialist grass than capitalist seedlings”. Capitalist seedlings are good, but they are not politically correct. I don’t want it. That is, I would rather have bad oil in Venezuela than good oil in the United States.
Second, at the same time, one of the other things the Biden administration has done is to release 10 million barrels of strategic petroleum reserves (Strategic Petroleum Reserves, SPR). The U.S. military reserve oil is the oil used when the U.S. is preparing for war and the country is in danger. The United States has maintained a fairly large strategic oil reserve since 1973. The highest point of this oil depot can store more than 700 million barrels, and the lowest is more than 5 million barrels. Therefore, now the U.S. strategic oil reserve is due to the continuous release of the Biden administration. , has fallen by nearly 40% from its peak, and it has reached a dangerous point. In the event of a war in the sea, American aircraft carriers need oil, so what will it mean if there is not enough oil?
Think about it, after releasing 10 million barrels of strategic oil reserves, OPEC decided to reduce production by 2 million barrels. The actual production reduction due to the quota issue was about 900,000 barrels. Then the United States released 10 million barrels of strategic reserves. Well, it will be gone after 12 days. , what should I do after that? Will you continue to release?
Therefore, releasing oil from the strategic reserves is like a drop in the bucket. It can’t solve the fundamental problem, and it can’t solve the operation of Central and Eastern OPEC to add fuel to the fire. But that’s just what Biden can do.
So far, we have seen that the best policy is excellent, but it is not politically correct; the bottom policy is extremely bad, and in fact it is not very successful. Even if Venezuela allows you to come in and drill for oil, you will not be able to do it next month, not even this winter. It can be done; if the strategic oil reserves are released for a while, the country will face a dangerous state. So the Biden administration seems to be at a loss.
Central Policy: Folk forces assemble and operate to alleviate the national energy crisis
Fang Wei then mentioned that there is another central policy that neither needs the Democratic Party to change and make its breakthroughs, nor does it need Venezuela to do extremely ugly things. Speaking of Zhongce, let’s go back to a story from 1973.
There was a war in 1973 that was very similar to today, and it was called the Yom Kippur War, or the Ramadan War. On October 6, 1973, the Egyptian and Syrian armies launched a raid on Israel, because they were in the previous war called the 6-day war, and the Arab countries were defeated, so Egyptian President Sadat and Syria’s Assad took pains. Deliberately waging a war to destroy Israel. After a long time of careful preparation, a raid on Israel was launched on this day.
The Arab army in the Sinai Peninsula and the Golan Heights greatly surpassed the Israeli defenders, so Israel was facing the danger of almost destroying the country at that time. The United States supported Israel with rapid air shipments of weapons and supplies. The United States was an ally of Israel at the time, while the Soviet Union was on the other side, providing arms support to Egypt and Syria. So despite the desperate resistance of the Israeli army, the war situation is still very dangerous.
11 days after the war began, Middle East oil ministers, including representatives from Egypt and Saudi Arabia, met in Kuwait and said, ‘We are now imposing an oil embargo on Western countries for the first time in history, first on the US and second It is an embargo on European countries. And then the oil ministers in the Middle East say, if you don’t meet our demands for Israel to surrender and America to stop supporting Israel, we’re going to further restrict energy. That is to say, in addition to embargoes, there are more powerful means. The Shah of Iran at that time, Pahlavi, said: You in the West have to realize that the time when you got riches from cheap oil is over. All in all, it choked the neck of Western energy.
The Yom Kippur War in the Middle East itself only lasted 20 days, and ended with the defeat of Syria and Egypt, and even the Suez Canal was lost. The oil embargo lasted for five months from October 1973 to March 1974, wreaking havoc on the world economy, especially in Western Europe. At the time, 80 percent of Western Europe’s oil was imported from Arab countries.
So it’s a bit like the current Russian-Ukrainian war. Now the Russian-Ukrainian war is being fought, and behind it are Western countries dominated by Russia and the United States. Back then, Israel fought with Egypt and Syria, and was backed by the United States and the Soviet Union. As a result, oil could not come out. At that time, the embargo was more severe than it is now, so governments of various countries struggled to deal with it.
But how to solve the oil problem? It requires very specialized knowledge, sufficient resources, and strong political will to be able to deal with this crisis. The US president at the time was Nixon, and he did the simplest thing first, which was to constantly criticize oil companies for raising prices and criticize them for raising oil prices; then Secretary of State Henry Kissinger negotiated with Middle East countries, but he For the first time, I also faced the international oil market. The links here are really very complicated, and it is very difficult to disassemble. In the end, I was angry to death.
So what is the result? When Western governments are in trouble, we all know what the way to solve the problem is now. No matter what you just said is the best policy or the worst policy, or what Nixon faced back then, everyone is counting on the government, the government, the government. This problem is the government. If it is created, then your government will have to deal with it. The government couldn’t do anything about it. It was much more difficult than now. At that time, there was no shale oil and no hydraulic fracturing technology. The best policy did not exist at all. That is, there is no oil. What should we do?
What happened then? It is to reduce the maximum speed of the highway, because when you drive to a certain speed, you will consume oil, and it will be inefficient; the average temperature of the room temperature in the United States cannot be that high, and it is also winter. All in all, the American people tighten their belts and have to survive this process.
At that time, when the government was helpless, the largest oil companies in the West took action. Their counterparts, including Exon Oil Company, Texaco Texaco Company and Mobil Mobil Oil Company, sat down and conducted tense negotiations and coordination. How to transport and minimise disruption to oil supplies. Because the oil produced by Arab countries is embargoed to the United States and Western Europe, but can be shipped to other countries, these oil companies will take the initiative to coordinate with various countries that are not embargoed, so that the oil of Arab countries can be sold to these non-embargoed countries. countries, and oil produced elsewhere is sold exclusively to this embargoed country, and then to the United States and this Western Europe.
This is a very complex international logistics system that requires multinational companies to track thousands of tankers and oil flows around the world. At that time there was no computer system like today, and it was almost entirely manual tracking, but these oil companies were very united, like citizens of an international community, and they introduced a principle called “equal victimization”, according to the level before the embargo. Countries distribute oil, and these oil companies do it, and all countries face similar cuts. Then they play a very important role in smoothing out a potentially catastrophic shock to the world‘s energy supply.
The upshot of their effect, then, is that while overall oil supplies are down a bit, there is no catastrophe like many had predicted, especially for the US and Western Europe. The oil embargo back then was the same as Russia’s embargo on Europe now. The North Stream oil pipeline was destroyed. But it was worse then than it is today. Later, the Federal Energy Administration issued a report on the crisis, in which it said that by redistributing the global oil supply, American oil companies had made a fair distribution of the supply and blunted the Arab oil weapons offensive. .
All in all, these American oil companies have done a very good job. They actively coordinate with governments of various countries around the world, monitor oil flows and thousands of tankers, and eventually achieve an average reduction of everyone, which has slowed down to a large extent. The shock of the oil embargo facing the United States and Western Europe.
From Nixon’s “Oil Independence Project” to Trump’s achievement of US energy self-sufficiency
Looking back now, it has been about 50 years since 1973. This is when the United States took action to slow down the impact of the energy crisis. What are the after-effects of this?
In 1973, Nixon terrified the United States. He said that we would not be able to buy oil under the oil embargo. Oil is the blood of our United States. How can we live if the blood has stopped. So Nixon announced a project called the “Petroleum Independent Project”, and he was determined to free the United States from foreign oil dependence by 1980, seven years later. But by 1980 it was not done.
But since then, every president, from the next president, Ronald Reagan, to Bush Sr, Clinton, Bush Jr., and Obama, has made energy independence a goal, a goal that was fully realized in the Trump era. . Trump not only said that our US should be independent in energy, Energy independence, Trump also changed a word to Energy dominance, and changed it to energy dominance.
It was also during the Trump period that hydraulic fracturing of rocks was used to produce oil and natural gas. This technology began when the United States suffered an energy crisis in 1973, so the crisis was an opportunity, which triggered the rapid development of energy technology by American energy companies. In the Trump era, it really worked in the end. Coupled with Trump’s very open energy policy, Trump’s four-year U.S. crude oil supply has changed from 14.8 million barrels to 18.4 million barrels. For the first time, the United States has become fully self-sufficient in oil.
But unfortunately, because Biden signed several decrees on his first day in office, he cut off the Keystone Pipeline and blocked energy self-sufficiency. The energy crisis has encountered an unprecedented situation.
Fang Wei said, what is the point of telling this story? How the United States should open up oil, of course, is what it should be, but now the Biden administration should not do that. What I want to say is that private companies can often do many important things. For example, in 1973, American private companies used their unique management capabilities to combine technology and industrial organizations to solve a crisis globally. Therefore, it is very important for private companies to gather together.