In Oil & Companies News 04/10/2016
Saudi Arabia has a two-part plan for the oil market. The first part is to “stabilize” oil prices at around $50 to help stop the bleeding in its fiscal and social budget. The second step?
To push oil prices towards $100, and help its Aramco IPO, when it comes out in 2018.
The first part of the plan seems to be on track. Oil is already hovering near the $50 mark, following the Algiers meeting where the kingdom got OPEC members to agree to output cuts.
The second part of the plan will take time to execute and will require two things: peace with Iran, and help from American environmentalists.
Making peace with Iran is very important, as pushing oil above $50 will require that OPEC hold members together and stick with market quotas. And that’s very unlikely, as the chasm between the two countries has grown bigger in the last year.
Besides, why should Iran help Saudi Arabia with its Aramco IPO plans?
Then there’s the problem with American frackers, who are ready to supply more oil to the market, as soon as prices cross the $50 and $60 threshold. It’s a problem, that is, unless the kingdom get some help from American environmentalists for this part of the plan, as it did back in the 1960s and the 1970s.
For the record, there was a time America was the world’s largest oil producer. That was prior to 1973, when the environmental movement was at its infancy.
Then came a couple of serious accidents that caused a great deal of harm to the environment and stirred public anxiety over the growth of the American oil industry. A 1968 tanker accident created a massive oil spill in Europe, for example. And then there was the 1969 well blowout in the Santa Barbara Channel, off the California coast.
These events sparked the beginning of the environmental movement as we know it today, which pushed for new rules and regulations that stalled the growth of the American oil industry.
The new rules put in place didn’t deter future accidents. But they did offer an opening for the Kingdom of Saudi Arabia to become the world’s largest oil producer, setting the rules of the game in the oil market.
Then came fracking, which turned America into the world’s largest oil producer again. That’s why Saudi Arabia has been trying to put American frackers out of business by flooding world markets with oil – to drive oil prices lower and marginalize frackers out of business.
American frackers have nonetheless demonstrated an exceptional ability to come back anytime oil prices head north, however.But has the environmentalist movement, which won’t let any American election go to waste, renewing their calls to regulate fracking.
While it is still unclear whether environmentalists will have their way, one thing is clear. To keep oil prices above $50 and push them towards $100, Saudi Arabia will need all the help it can get from environmentalists.
The type of help they provided in the late 1960s and early 70s, that is. Especially, if it doesn’t get any help from Iran.
Source: Forbes
