Saudi Arabia, which controls about 20 percent of the world’s proven oil reserves, has no plans to curtail crude output even though the country benefits from higher prices.
Oil provides more than 70 percent of revenue to the Saudi monarchy, which has about $630 billion in financial reserves,
the New York Times reported. The country is spending that cash pile by $5 billion to $6 billion a month, which means it can hold out for at least nine years before going broke, according to Newsmax Finance estimates.
“If prices continue to be low, we will be able to withstand it for a long, long time,” Khalid al-Falih, the chairman of Saudi Aramco, the kingdom’s national oil company, said last week at the World Economic Forum in Davos, Switzerland, according to Reuters.
The country has said it wants to maintain its market share among oil-producing countries.
“We don’t want to panic,” Abdalla el-Badri, secretary general of the Organization of the Petroleum Exporting Countries, told reporters at the group’s November 2014 meeting in Vienna. “We want to see how the market behaves.”
The price of oil has collapsed about 70 percent since the summer of 2014 as oil-producing countries maintained their output levels while the growth of Chinese demand slowed. West Texas Intermediate oil this month fell to a 13-year low of less than $27 a barrel in New York trading.
Oil on Thursday climbed as much as 8 percent to $35 a barrel on
reports that OPEC will hold a meeting next month to discuss production levels.
The Saudis have tried to maintain generous social programs, like subsidized housing and cheap energy, to preserve domestic tranquility. It recently raised the price of gasoline and has considered selling an interest in Saudi Aramco.
The country “is essentially betting that it can win an oil-price war of attrition — not only against its OPEC rivals like Iran, Iraq and Venezuela, but also against non-OPEC rivals like Russia and the many shale-oil producers in the United States that have contributed to the global glut,” the newspaper reported.
The U.S. shale industry has suffered major setbacks with the drop in oil prices, with massive layoffs and bankruptcies in crude-producing states like North Dakota and Texas.
Meanwhile, Iran is boosting its exports after the partial lifting of Western sanctions that were intended to dissuade the country from developing an atom bomb. That increased production may push down prices even further, with some doomsayers predicting lows of $10 a barrel.
“As far as I am concerned, the strategy is not working,” Nordine Ait-Laoussine, a former energy minister of Algeria, an OPEC member, said of the Saudi commitment to high oil production, according to Reuters.
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