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What is Saudi Arabia not telling us about its oil future?

What is Saudi Arabia not telling us about its oil future?

It is popular these days to speculate about why Saudi Arabia cajoled its OPEC allies into maintaining oil production in the face of flagging world demand. As the price the world pays for oil and oil products has plummeted, the price OPEC members are paying in terms of lower revenues is high, even unbearable for those who didn’t save up for just such a rainy day.

Was the real reason for the decision to maintain production the desire to undermine rising U.S. tight oil production–which has now proven embarrassingly vulnerable to low prices after years of triumphalist talk from the industry about America’s “energy renaissance”? Were the Saudis also thinking of crippling Canada’s high-cost tar sands production? Was it Sunni Saudi Arabia’s wish to undermine its chief adversary in the region, Shiite Iran? Was the Saudi kingdom doing Washington’s bidding by weakening Russia, a country that relies so heavily on its oil export revenue?

The Saudis say explicitly that they believe non-OPEC producers must now balance world oil supply by cutting back production rather than relying on OPEC–meaning mostly Saudi Arabia–to do so. And, those cutbacks in the form of drastically reduced investment are already taking place in the United States, Canada and around the world as low prices are forcing drillers to scale back their drilling plans dramatically. It is not well understood, however, that almost all of the growth in world oil production since 2005 has come from high-cost deposits in the United States and Canada which has made the two countries easy and tempting targets for the Saudis’ low-price strategy.

 

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