Saudi Arabia going broke?

Good day all. If you’ve been filling your gas tank, you’ve noticed that gas prices are down significantly from last year. The reason for this is the massive oil finds in the United States and the new versions of Fracking that are now bringing this oil to market at a reasonable cost.

The oil coming from these fields is considered the “Good Stuff” meaning it’s easy to refine. Because the world is awash in this oil, Saudi Arabia decided to cu their prices to try and break the oil companies drilling in the United States. It’s a tried and true method used by monopolies for a century, starting with Standard Oil. There’s just one small problem. Sometimes the monopoly runs out of money first. This seems to be happening to Saudi Arabia and the other OPEC countries. Here are the details from The Telegraph:

It is too late for OPEC to stop the shale revolution. The cartel faces the prospect of surging US output whenever oil prices rise. If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.

After decades of American administrations kowtowing to OPEC and the Arabs, they won’t be getting much sympathy from me, or most Americans for that matter.

The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6m barrels a day (b/d) into the teeth of the downturn. If the aim was to choke the US shale industry, the Saudis have misjudged badly, just as they misjudged the growing shale threat at every stage for eight years.

[youtuber youtube=’http://www.youtube.com/watch?v=Gbp_JQ7RxqM’]

“It is becoming apparent that non-OPEC producers are not as responsive to low oil prices as had been thought, at least in the short-run,” said the Saudi central bank in its latest stability report. “The main impact has been to cut back on developmental drilling of new oil wells, rather than slowing the flow of oil from existing wells. This requires more patience,” it said.

In other words, the oil producers in the United States has been to cut back on new drilling and increasing the oil being pumped from their existing wells. I would suspect that they are still doing some basic searching for oil using modern seismic techniques. That’s a heck of a lot cheaper than drilling a new well. They just mark areas for future drilling.

One Saudi expert was blunter. “The policy hasn’t worked and it will never work,” he said.

By causing the oil price to crash, the Saudis and their Gulf allies have certainly killed off prospects for a raft of high-cost ventures in the Russian Arctic, the Gulf of Mexico, the deep waters of the mid-Atlantic, and the Canadian tar sands.

Oh that must make Putin really happy. His whole economic plan along with his military games has been predicated on oil being $100+ a barrel.

Saudi Arabia is effectively beached. It relies on oil for 90pc of its budget revenues. There is no other industry to speak of, a full fifty years after the oil bonanza began.

This is the major problem for the Arab oil states. They’ve been living off their oil revenue and not planning for the future. They’ve also been using it to bribe their own people to keep them docile. Once the money runs out and those people stop getting those checks, they are going to be really angry. When they get angry, they are going to do a little head chopping and the House of Saud will end up as a footnote in history. It couldn’t happen to a nicer bunch.

Thatisall

~The Angry Webmaster~

[yasr_visitor_votes size=”medium”]