Saudi oil policy adrift despite Aramco’s eye-watering earnings

Saudi Arabia has no easy answer to falling oil prices. The kingdom could provoke an international backlash by slashing exports, or open a new war with US shale producers by flooding the market with cheap crude. The former risks the ire of President Donald Trump, but the latter would shatter the fragile economies of its OPEC partners and threaten the IPO of Aramco. The value of Brent crude has slumped 20% since April and traded for most of last week briefly below $57/b after a slew of bad data tethered the market’s few remaining oil bulls. OPEC’s members led by Saudi Arabia require oil trading closer to $80/b to sustain their high-spending autocratic economies. Higher prices are also a prerequisite for Saudi Aramco’s delayed IPO, despite the state-owned producer reporting almost $47 billion of net income in the first half. OPEC and Saudi Arabia’s main rivals in America’s prolific Permian and Bakken shale basins appear to have no such worries. For example, Shell says its existing wells in Texas and New Mexico can turn a profit at $35 per barrel. This explains why the US is now the world’s largest producer, pumping 12.3 million b/d of crude last week, according… continue reading

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