March 24, 2017

GOOD: Saudis Are the Oil Market’s Biggest Losers.

The last few years have been difficult for anyone in the business of selling oil, as prices tumbled from over $110 per barrel to a nadir of just $27, before rebounding to the middle ground they reside in today, at roughly $50 per barrel. Bargain crude has forced state producers like Russia or OPEC’s members to cut budgets in an attempt to stop the bleeding, and it’s forced many private firms—especially those operating in relatively high areas like shale—out of business.

But no supplier has been harder hit by the collapse of oil prices than Saudi Arabia. Riyadh has had to dip into its sovereign wealth fund to help cover the budget deficit bargain crude has brought about, and it’s also had to do the heavy lifting for the production cut plan OPEC and 11 other petrostates agreed to adhere to during the first six months of this year. That combination—lower production and lower prices—has been nothing less than vicious to the Saudis. . . .

Perhaps it’s not surprising that Riyadh would be the one most unduly affected by cheap crude. After all, the Saudis are and will remain for the foreseeable future the world’s biggest oil power. But the kingdom’s decision to agree to production cuts—and to shoulder the heaviest burden of those cuts, as well—is having something of a self defeating effect. As prices rise, so too do the prospects of struggling shale producers, which means that the Saudis are effectively giving valuable market share to their American competitors.

I’m so old I remember when Barack Obama mocked Sarah Palin by saying that we couldn’t drill our way out of our energy problems.

Related: Canada’s Oil Sands Looking Like A Smart Bet.

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