Analyst: Soon to be Broke Saudis ‘Fooled Themselves’ on Oil
A gambit by Saudi Arabia to break the back of its oil competition – the North American shale oil business – has fallen flat on its face, a respected UK analyst said Wednesday. As a result, Saudi Arabia and OPEC face a bleak economic future, according to Ambrose Evans-Pritchard. “If the oil futures market is correct,” Pritchard wrote in the Daily Telegraph Wednesday. “Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.”
That crisis will gravely affect not just Saudi Arabia, Israelis analysts said, but also the clients of what had until now been the Sunni Muslim “money machine” that funded projects the world over for the advancement of Arab and Muslim causes. Among the biggest victims is likely to be the Palestinian Authority, which has been a major recipient of aid from the Saudi government and Gulf oil moguls.
Oil prices started to slip late last year, after the Saudis continually pumped up production, despite a worldwide glut. Prices fell, but still Saudi – and eventually OPEC – production was not cut, or even increased, to the point where oil now regularly trades in the area of $50 a barrel, a third of its price just a few years ago.
Analysts at the believed that the Saudi strategy was to “starve” the American shale oil industry, which has emerged as a major competitor to OPEC oil. Thanks to shale production and new oil well discoveries, the U.S. this year became the world’s leading oil producer.
However, shale oil, the Saudis believed, could not be produced profitably at rates below $60-$70 a barrel – and if oil were to be maintained at prices like that, they believed, the U.S. shale producers would shut down, leaving OPEC once again the “kings” of the international oil market, and its prices.
But Riyadh was wrong, said Pritchard. “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,” he wrote. “The problem for the Saudis is that US shale frackers are not high-cost. They are mostly mid-cost. Advanced pad drilling techniques allow frackers to launch five or ten wells in different directions from the same site. Smart drill-bits with computer chips can seek out cracks in the rock. New dissolvable plugs promise to save $300,000 a well.”
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