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Monday, November 16, 2015

Will Low Oil Prices Force Saudis to Blink and Change Strategy?

From MarketWatch:
Saudi Arabia is feeling some significant fiscal pain as a result of a collapse in oil prices it helped to engineer. But that doesn’t mean the world’s most important oil producer is likely to change its tune. 
Here’s a recent pair of headlines out of the desert kingdom: 
  • An International Monetary Fund official told The Wall Street Journal that Saudi Arabia and fellow Middle Eastern oil exporters face a combined $1 trillion budget shortfall over the next five years if crude oil prices remain near present levels and economic reforms aren’t introduced soon.
  • Bloomberg reported that Saudi Arabia delayed payments to government contractors as slumping oil prices pushed the country into deficit for the first time since 2009.
Those developments have oil bulls salivating. They argue that Saudi Arabia and its fellow members of Organization of the Petroleum Exporting Countries overestimated the resiliency of U.S. shale producers when they embarked on a price war aimed at taking market share back from the U.S. and other non-OPEC producers.
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