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Sunday, October 19, 2014

'How will Saudi Arabia Respond to Lower Oil Prices?'

Jim Hamilton:

How will Saudi Arabia respond to lower oil prices?: Oil prices (along with prices of many other commodities) have fallen dramatically since last summer. Some observers are waiting to see if Saudi Arabia responds with significant cutbacks in production. I say, don’t hold your breath. ...
Last week I discussed the three main factors in the recent fall in oil prices: (1) signs of a return of Libyan production to historical levels, (2) surging production from the U.S., and (3) growing indications of weakness in the world economy. ...
In terms of surging U.S. production, the key question is how low the price can get before significant numbers of U.S. producers ... move into the red..., it’s in the Saudis’ longer-term interests to let that pain take its toll until some of the newcomers decide to pack up and go home. If U.S. production does decline, prices would quickly move back up. But if that happens after a shake-out, the next time there would be less enthusiasm for everybody to jump into the game...
My guess is that Saudi Arabia would lower prices rather than cut production as long as that’s the name of the game. ...

    Posted by on Sunday, October 19, 2014 at 09:34 AM in Economics, Oil | Permalink  Comments (22)


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