The Real Reasons Saudi Arabia Won’t Support Oil Prices Above $40
Saudi Arabia had a clear and loud message to oil markets ahead of the upcoming Doha meeting: “the Kingdom rules out any production cuts.” This means that Saudi Arabia won’t support the recent run up of oil prices above $40 at this point.
Why? Because “markets are volatile” – that’s the official reason. Whatever that means. Perhaps, Saudi Arabia leaders fear that production cuts aren’t enforceable. But the same is true for production freezes the Kingdom has been promoting.
The real reasons?
I have no insight into the Kingdom’s political machine, but I can summarize different theories presented here by the scores of commentators to my previous pieces on this subject.
The first theory is that Saudi Arabia wants to keep prices below $40, in the short run, to crush American frackers – and in the long run, regain leadership of the oil market.In fact Ali al-Naimi, Saudi Arabia’s petroleum minister, has told American frackers publicly that they will be crushed by the market because they don’t have the cost structure to survive the on-going price war.
The second theory is that Saudi Arabia is in an all-out economic war to undermine the American economy.
The plan is to crush the US economy,” says one commentator.“They have made the economy dependent on the low oil prices and held them there for years to allow the economy to become entrenched upon needing these prices. Now the second phase of the plan shall soon come. Rapid reduction in output. Driving the price up much faster than the US fracking and oil industry can reestablish home land supply. This will crush every aspect of the US economy. . .The USA is a sitting DUCK. But before they pull the trigger, they are going to tie up cash and funding through lending, which will further prevent the oil industry from reestablishing US production and output.”
The trouble with both theories is that Saudi Arabia and America have been long time economic and political allies. Why would Saudi Arabia risk these relations by driving American frackers out of business, or by declaring an all-out economic war against the US?
