Price-crushing oil policy stands

24. January, 2015 News No comments

Saudi Arabia’s King Abdullah’s death on January 22, 2015 has now been confirmed. The monarch died at 90.

King Salman, Saudi Arabia’s new ruler, will keep oil minister Ali Al-Naimi in his post, confirming expectations that he will continue the policy of maintaining crude output to preserve market share and allowing market forces to determine the oil price.

John Sfakianakis, Middle East director for Ashmore Group and former chief economic adviser to the Saudi finance minister, echoed this statement. The kingdom, he said, sets policies with a long-term view and makes changes very slowly.

Saudi Arabia has 16% of the world’s proven oil reserves and is the biggest exporter of petroleum liquids in the world, according to the US Energy Information Administration.

Does it really have an influence on world’s crude oil situation?

Today, as the Kingdom recovers from the death of King Abdullah, Saudis don’t carry the same clout. In part, that’s because the U.S. is much less dependent on Middle Eastern oil than it was a few years ago, as U.S. companies have reinvented the way oil and natural gas is produced. Hydraulic fracturing has opened access to liquid energy deposits locked inside once-impenetrable rock formations, and breakthroughs in horizontal drilling methods have made the technology more profitable. By the end of this decade, the United States is expected to produce almost half the crude oil it consumes. More than 80% of its oil will come from North or South America. By 2020, the United States could become the world’s largest oil producer, and by 2035 the country could be almost entirely self-sufficient in energy. Relations with the Saudis are no longer a crucial feature of U.S. foreign policy, and the surge in global supply, which has helped force oil prices lower in recent months, ensures that others are less concerned with the Saudis as well.

That’s not really a good perspective for crude oil prices and there is no sign that this situation will improve soon. The price of crude oil barrel now is 48,79$.



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