Saudi Arabia’s oil price war: relying on low cost of crude oil production
Saudi Arabia; the world’s main oil producer
second to the USA; has
the least crude oil production cost second to Kuwait; can comfortably take on the
US shale oil
producers require the international oil market price not to fall below $70 for
them to remain in business. And so, the Saudis strategy is to oversupply the
market to force down the price of crude oil and thereby send the shale frackers
back to the rocks.
The Saudis strategy is working as most of the
North America’s shale
oil and gas companies have filled for bankruptcy protection. They don’t even
have the money to meet the cost of production before talking of making profit.
The authorities in
Saudi Arabia believes, obviously, if the shale oil producers are not driven out of market; they will lose their Europeans and American customers to them. To the Saudis, it is
better to sell more barrels of oil at a lower price than to sell fewer barrels
at a higher price. Why not; they have the volume at lower cost.
This is simple economics – selling volumes will maintain employment within the oil industry although wages may decline. But it is better than shutting down some oil installations if demand falls, which will lead to unemployment. As at the current oil price of about $33, the Saudis are winning the oil price war against the shale oil producers.
On the other hand, the Saudis premised price of $15 per barrel is to curtail
Iran’s exploit in Syria. And by extension, weaken the
rise of Iran’s Shi’ah Islam in the Middle East and around the
As it is said, it is the grass that suffers when two elephants fight. Other OPEC countries with high cost of production will suffer this oil price war. For example,
of producing one barrel of oil is $31.60
As such, it will be unimaginable what will be of
if the Saudis succeed in pulling oil price down to $15 per barrel. Even at the
current price of $33, Nigeria
is barely making a profit of $2 per barrel. No wonder President
Buhari of Nigeria is
currently in Saudi Arabia
visiting King Salman and perhaps begging him to soften his position for the
sake of Nigeria.
I guess in his plea, Buhari will remind King Salman how he massacred his fellow Nigerians (Shi’ah movement in
solidarity with the kingdom’s war against Iran. Anyway, permanent
interest is what matters in politics, sentiment can wait for the sun.
As Buhari is used to speaking to Nigerians with his ‘body language’ he probably had read the body language of King Salman that his pleas may have fallen on deaf ears. And so, Buhari proceeded to
Medina for lesser hajj so as to pray for Nigeria. Well,
someone should tell the President that ‘heaven helps those who help themselves’.
It is worthy to note that even though the praying ground (
Medina) is in Saudi Arabia,
the Saudis still rely on strategies than prayers – counting on their low cost
of crude oil production.