for Saudi Arabia
Despite the effects from the OPEC production cut and austerity measures, Saudi Arabia can ride out the current economic headwinds without having to switch market strategy. That outcome, though, is not a certainty since there are factors that could further negatively impact the Saudi economy.
It’s Déjà Vu All Over Again: OPEC, Petroleum Investment, and the Threat to U.S. Consumers and Energy Security
Over the decades, a key to these extreme shortages and surpluses in the global oil market is OPEC’s role in structurally either undersupplying the market or mismanaging its investment function.
Saudi Arabia is poised to make "unprecedented" cuts to customers next month, while OPEC's secretary-general suggests the cartel may take "extraordinary measures" to further tighten oil market fundamentals.
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Saudi Arabia and Russia successfully collaborating on tightening fundamentals and lifting prices, if it continues, will likely have large ramifications for the global oil market in the future, given that both are in a position of strength with high production volumes and large proven reserves.
Saudi Arabia’s plans to buy and sell third-party crude prompt concerns about how widely Aramco will expand its trading apparatus and how it will use its market power.
When discussing the “success” surrounding OPEC’s cuts, it’s important to remember where the market was at the beginning of 2016, when prices fell below $30. Now, prices are in the mid-$50s, reflecting the impact of OPEC's actions.
Ed Hirs, an energy economist from the University of Houston, talks to The Fuse about the dangers of oil supply disruptions and OPEC's impact on shale.
OPEC’s gamble to cut production to shore up prices has not worked out the way members thought it would, but the cartel cannot be faulted for not trying. The inadequacy of its policy in the first part of 2017 means that OPEC will do whatever it takes during the second half of the year to achieve its goals.
If the GCC crisis lasts for months or even years, the appeal of more extreme measures could grow over time.