Saudi Arabia Wakes Up To Another ‘Groundhog Day’

It’s Groundhog Day all over again until Saudis embrace their role.

Saudi Arabia will not allow itself to be used by others… we will not bear the burden of ‘free rides.'” – Saudi Energy Minister Khalid Al-Falih.

It was precisely that thinking which led former Saudi oil minister Ali al-Naimi to declare a market share battle in November 2014. He did not want to cede market share to American shale oil while the kingdom cut production to support prices.

”It’s déjà vu all over again”Yogi Berra

Oil Prices are already back below where they were before OPEC “pulled a rabbit out of its hat” on November 30th, announcing the deal. Only days before, Mr. al-Falih said there was no path to a deal.

Khalid Al-Falih, Saudi Arabia’s energy minister. (Photo: Aaron M. Sprecher/Bloomberg)

He made it clear that the production cuts were designed as a short-term tool, not a long-term strategy.

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…History has also demonstrated that intervention in response to structural shifts is largely ineffective, and I believe we’ve learned that lesson. That’s why Saudi Arabia does not support OPEC intervening to alleviate the impacts of long-term structural imbalances, as opposed to addressing short-term aberrations such as financial crises, economic recessions, unforeseen supply disruptions, or the like.”

Taking the statement at face value, there will come a day when the strategy ends, and OPEC and non-OPEC producers go back to the game of one-upmanship, as it applies to crude oil production.

“The Saudis Will Torture Them”

Harold Hamm, CEO of Continental Resources (NYSE:CLR) had previously said that if Iran and Iraq do not cooperate, “the Saudis will torture them.” By that, he explained, flood the market and drive down the price.

Robert Boslego