The plunge in oil prices is doing no favors for Saudi Arabia, and the ultimate consequences for the nation could be quite dire, says Ambrose Evans-Pritchard, international business editor of The (London) Telegraph.
"If the oil futures market is correct, Saudi Arabia will start running into trouble within two years," he writes
. "It will be in existential crisis by the end of the decade."
The December 2020 price of $61.80 a barrel for U.S. crude "implies a drastic change in the economic landscape for the Middle East and the petro-rentier states," Evans-Pritchard says.
The September 2015 contract traded at $44.51 Thursday morning.
The Saudis gamble in lifting output last November has failed, he notes. Saudi Arabia hasn't disabled the U.S. shale industry. U.S. oil output hit a record in March and totaled 9.5 million barrels a day in the week ended July 31.
The Saudi government's huge subsidies for its citizens represents a major problem, Evans-Pritchard says. The IMF estimates the country's budget deficit will hit 20 percent of GDP this year. The fiscal break-even price for oil is $106.
Saudi Arabia is quickly burning through its currency reserves, Evans-Pritchard notes. "We may yet find that the U.S. oil industry has greater staying power than the rickety political edifice behind OPEC.
Elsewhere on the energy front, Alex Epstein, founder of the Center for Industrial Progress, isn't too impressed with President Obama's new Clean Power Plan that requires U.S. power plants to cut their carbon dioxide emissions to 32 percent below 2005 levels by 2030.
"A much milder version of the Obama-Hillary Clinton plan has been tried in Germany — and it has already impoverished millions," he writes on Forbes.com
Germany has sought to replace reliable fossil fuels with unreliable solar and wind energy, but it hasn't worked, Epstein says.
"While Germany has spent hundreds of billions of dollars on solar panels and wind turbines, they provide only an unreliable 15 percent of its electricity and 3 percent of total energy. Consumers pay a fortune for that unreliable energy."
Here at home we should focus on technology like shale oil and gas drilling that boosts our energy supply, Epstein says.
"We don’t need a 'Clean Power Plan'—a euphemism for a blackout plan, which supports unreliable technologies" with environmental problems of their own, he says.
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