Tags: Sen | oil | Saudi Arabia | price

Oil Analyst Sen: Saudi Arabia Still Controls Global Oil Prices

By    |   Tuesday, 30 December 2014 12:29 PM

Saudi Arabia is still in charge of global oil prices since the kingdom is willing to endure substantial pain to shake out other producers, according to Amrita Sen, chief oil analyst at Energy Aspects, a London-based consultancy.

While the 2008 crude collapse was caused by external pressures from an eroding global economy, the current atmosphere of tumbling oil prices was exacerbated when Saudi Arabia decided not to intervene to prop up prices.

"The decision to not intervene is a brave one given that it signals a departure from what economic theory would suggest an oil producer should focus on — revenues," she wrote in an article for the Financial Times.

"Saudi Arabia is giving up billions of dollars of revenues in the short term and running a $39 billion budget deficit in 2015, in an effort to retain market share. It is betting a period of lower prices (which it can withstand given plentiful foreign exchange reserves) will shake out some high-cost producers."

For the oil industry and OPEC, Saudi Arabia's stubbornness serves as a "wake-up call," since the kingdom's oil minister recently warned the country will not give up market share by cutting production even if prices fall to $20 per barrel.

Perhaps there is a lesson from Saudia Arabia's stance that U.S. shale producers, who in recent years went on a huge production binge and took on large debts, should heed, Sen suggested.

Sen's consultancy estimates more than a third of global oil production is "uneconomic" at current prices, and more than 2 million barrels a day of new projects are at risk.

"The consequences are profound. No boardroom discussion at an oil company will ever be the same again. Pursuing projects at any cost, something already being questioned by investors, will now be more closely scrutinized by management if Saudi Arabia is no longer the price stabilizer people have expected it to be," she predicted.

As oil prices plumb fresh lows, it could wreak more havoc on oil-dependent exporters like Russia and Venezuela, even as Saudi Arabia escapes much harm, CNBC reported.

"Whilst it is true that Venezuela 'needs' $160 (per barrel to break-even) or Iran 'needs' $120 oil, and many other countries much higher than the current levels, there is nothing that they can do as long as the Saudis stand firm," said Malcom Graham-Wood, an independent oil and gas analyst.

"The best that all the other world producers from Russia through Canada, the U.S., Mexico, Latin America, Africa and the rest of OPEC can hope for is that by mid-2015, enough oil has come off the market. And combined with a pick-up in demand, that the equation looks a bit better."
 

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Saudi Arabia is still in charge of global oil prices since the kingdom is willing to endure substantial pain to shake out other producers, according to Amrita Sen, chief oil analyst at Energy Aspects, a London-based consultancy.
Sen, oil, Saudi Arabia, price
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2014-29-30
Tuesday, 30 December 2014 12:29 PM
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