Falling Oil Prices: a Saudi Viewpoint

Inside Story – What’s Behind the Falling Oil Prices

Al Jazeera (2015)

Film Review

A most revealing documentary. Unlike western pundits who speculate about conspiracies to wipe out shale oil producers (ie fracking) and the oil  economies of Russia and Venezuela, these Middle East analysts stick to economic fundamentals.

The three analysts identify three main factors behind the present oil glut: shale gas production, a big increase in renewable energy production and dropping demand by emerging economies such as China.

They maintain Saudi Arabia’s primary motivation for current output levels is fear of losing “market share” if they unilaterally cut oil production.

There’s also an interesting discussion about the Saudi plan to introduce taxation to help reduce their $98 billion deficit.

5 thoughts on “Falling Oil Prices: a Saudi Viewpoint

  1. This is very interesting to think about it: Why are oil prices falling?
    It seems logical to me that the Saudis do not want to lose market share.
    I did not watch the video yet, meaning I have no idea, how rich Saudi Arabia managed to accumulate such enormous amount of debt?

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    • Aunty, it’s my understanding that Saudi Arabia has no taxes at all at present. Up until now, their government has been totally funded by oil revenues. Until the recent drop in oil prices, there has been no need to implement unpopular taxes. Once people start paying taxes, they tend to demand some say in government.

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  2. These guys are not telling the whole story. Oil demand is and has been growing substantially:

    http://www.newsmax.com/US/oil-consumption-world-daily/2015/03/02/id/627842/

    The world oversupply is 3 billion barrels:

    http://www.bloomberg.com/news/articles/2015-11-13/iea-says-record-3-billion-barrel-oil-stocks-may-weaken-prices

    With world consumption at about 96mbd in 2016, this makes about 31 days of oversupply.

    The powerful forces of capitalism have already responded by slashing CAPEX budgets:

    http://oilprice.com/Energy/Crude-Oil/27-Billion-Barrels-Worth-Of-Oil-Projects-Now-Cancelled.html

    With the two biggest producers, Russia and Saudi Arabia, producing at maximum capacity, the market will be under-supplied by mid to late 2017. Expect a range between $100 and $200 a barrel by the end of 2017.

    China has been hoarding oil and metals since these markets have crashed despite the much over-hyped concerns about its slowdown to 6.9 or 7 percent annual growth:

    http://www.dawn.com/news/1234923

    https://www.rt.com/business/314236-Russia-China-cooperation-agreements/

    A lot of these T.V. experts, who usually get these projections wrong along with the IMF World Bank IEA, etc., might be more entertaining if they tried stand up comedy careers.

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  3. Interesting links PeaceFrog – thanks. I’m inclined to believe that China tends to exaggerate it’s true level of economic growth and to minimize the extent to which their credit policies have created a massive real estate bubble that will burst catastrophically if they don’t reign in their extravagant lending policies.

    Here in New Zealand and Australia, we are definitely seeing signs that China’s economy is cooling (which I believe is a deliberate move to shrink the bubble). They have cut way down on importing products from us compared to past years – New Zealand sells them milk powder and and Australia sells them coal, steel and other minerals. It’s our impression the reason China is stockpiling steel is because they have ceased frenetically building factories and high rise buildings as they were several years ago.

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  4. You say: “There’s also an interesting discussion about the Saudi plan to introduce taxation to help reduce their $98 billion deficit.”

    So far they apparently did not introduce any taxation, but because of falling oil prices they have a $98 billion deficit!

    $98 billion deficit seems such an enormous amount.

    PeaceFrog says: “With the two biggest producers, Russia and Saudi Arabia, producing at maximum capacity, the market will be under-supplied by mid to late 2017. Expect a range between $100 and $200 a barrel by the end of 2017.”

    Maybe the Saudis are not all that worried yet about their huge deficit? Eventually producing oil at maximum capacity is going to pay off for them again!

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