Saudi Arabia, the de facto leader and the most influential member of OPEC, at its last meeting in Vienna decided to break its recent strategic oil partnership with Russia and to adopt a new policy to increase the level of oil production. Prices have fallen, triggering the biggest decline since the Gulf war in 1991.
It is reported by CNN.
The new policy turned the oil market, giving Saudi Arabia a long-term advantage. This step marks a big change for the world’s largest exporter of oil, which in recent years has tried to control the world oil market by changing production levels, while maintaining a complex cooperation with Russia. Crown Prince Mohammed bin Salman has decided to implement long-term policies that not only retains, and eventually increases the market share of the Kingdom, but also could signal the end of OPEC as a United organization.
Saudi Arabia since 2012, has invested more than $35 billion to support sustainable production capacity to 12 million barrels per day with the possibility of increasing by another 1.5-2 million.
Thanks to new drilling technologies, the cost of production in Saudi Arabia dropped even further in some fields.
That is the trump card in Saudi Arabia soon. It is expected that by April 2020, the Saudis will produce 12 million barrels a day and exports will amount to 9.5-10 million.
Saudi oil is the cheapest in the world (taking into account taxes, capital costs, costs for production and transportation) — $9 per barrel, according to the IPO prospectus Aramco last year.
For comparison, the minimum cost of shale oil in the US is $23,3 per barrel (and $21 per nekenciu), while Russian production costs on average USD 19.2 per barrel.
The new policy suggests that the steady decline in prices will help the Saudis to maintain and eventually increase its market share in the conditions of boom of shale oil in the United States. Hydraulic fracturing of shale oil has already added several million new barrels of oil per day to the world market. However, shale oil is expensive, so lower prices on average 20 to 25 dollars per barrel for the U.S. benchmark indicate that several major manufacturers in the U.S. will soon find that their business models are completely unsustainable and untenable in the long term.
Saudi Arabia possesses about 25% of world oil reserves, about 70% of global spare production capacity and is the world’s largest oil exporter by a large margin.
Thanks to that soon Saudi Arabia will control the oil market, after pressure from the Russian Federation first collapsed the OPEC cartel+, and the end of OPEC itself and quite possibly will not keep itself waiting long.