Riyadh, Asharq Al-Awsat—Saudi Arabia is playing a strategic game by refusing to back a cut in OPEC oil production, lowering international oil prices, according to Gulf-based economists.
The price of oil continued to fall this week after the International Energy Agency (IEA) forecast weaker demand in 2015. Brent crude fell to below 63 US dollars per barrel on Friday, its lowest price since July 2009.
Suhail Al-Darraj, a Saudi-based economist, told Asharq Al-Awsat that he expects Brent crude oil to maintain price levels of no less than 60 US dollars per barrel. “We may see prices dip below this level, but not for long. Oil prices have become a major source of concern for many countries and international companies,” he said.
Darraj said that the oil price drop is most affecting countries like Venezuela, Iran and Russia, but is actually serving Saudi Arabia’s interests. “The declining oil prices are serving the strategic interests of the Kingdom, and in my view Saudi Arabia’s oil policy is characterized by a great deal of wisdom,” Darraj said in reference to the ongoing competition between shale and crude oil.
OPEC took the decision not to reduce oil production despite an oversupply in world markets at its annual meeting in late November. Oil prices have fallen sharply since June this year as increasing North American production of shale oil has flooded the market at a time of sluggish economic growth.
Darraj confirmed that many oil companies have stopped, or slowed, oil production due to falling prices. He added that billions of dollars are being lost due to the high cost of shale oil exploration, adding that it will be increasingly difficult for shale oil producers to continue a high level of output due to the accelerating slide in oil prices.
As for how Saudi Arabia has so far been able to absorb the impact of falling oil prices on its economy, the Saudi financial expert said that the steady value of the US dollar to the Saudi riyal has helped. “Iran and Russia have suffered a double blow during the current crisis, with the currency of both countries declining in line with falling oil prices.”
Gulf-based economist Fahad Al-Mashari told Asharq Al-Awsat that Saudi Arabia’s interests will be meet so long as crude oil stabilizes between 60 and 70 US dollars per barrel, adding that other oil-producing
states—particularly those relying on shale oil production—will be unable to sustain long-term profits if oil prices do not improve.
“Shale oil producers will suffer from the sharp decline in oil prices, while Saudi Arabia will succeed in protecting its share of the market, particularly after some international companies stop producing oil to save costs,” Mashari said.