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News To Ponder About (If You Can Get Past Donald Trump)

August 25, 2015

Today one of those articles that was designed to make for long-term pondering was printed in The Wall Street Journal.  Saudi Arabia and the price of oil on the world market is more than just about the price of gas at the local station.  This is world economics and geo-political nuts and bolts that impacts everything we read about on a daily basis.  The impact of any decision that does or does not get made to stabilize oil prices is stuff we need to be talking about in the presidential elections.

On Monday, Iran, another OPEC member, said it would welcome an emergency meeting of the group, even as it restated vows to boost its own production as soon as international sanctions are lifted, possibly later this year.

Those calls are aimed directly at Saudi Arabia, the only country capable of leading an effort to restrain production. Even Saudi Arabia’s short-term fortunes are taking a beating. The country is now expected to run a budget deficit as large as $150 billion, or about 20% of its gross domestic product, this year, compared with only 3% last year, according to the International Monetary Fund.

Saudi Arabia’s determination to keep pumping away had largely been focused on how the resulting lower prices would whittle away at supply as higher-cost projects are delayed and canceled. That is happening, though far less quickly than many predicted.

But the other pillar of the Saudi strategy is that demand would increase steadily in response to lower prices. That, so far, has been taken almost for granted. The International Energy Agency this month said total demand accelerated almost sixfold from the first half of last year to the same period this year, as the global economy expanded and consumers used more of the cheaper fuel.

The world’s largest exporter of oil accelerated a decline of crude prices last November when it decided to aggressively pump even more oil into an already oversupplied market. That set off a global production race, further expanding supply and filling storage tanks around the world.

The strategy was deliberate: Scramble for market share now, so when supply tapers off later as high-cost producers cry uncle the kingdom, and any others left standing, reap the rewards of increasing demand. The problem now: Demand, at least in the world’s biggest consumer of oil, China, may not increase anywhere near as fast as expected.

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