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Saudi oil policy and the reality of the ‘New Normal’ in global oil prices

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Saudi oil policy and the reality of the ‘New Normal’ in global oil prices

OIl - Gas pipeline middle east

Oil And Gas Pipeline In The Desert

OPEC’s efforts at shutting down US shale and Canadian tar sands operators would make great sense if the technical reality of North American oil production supports it. It doesn’t. The sad reality for any production-based moves by the cartel to regulate prices is that OPEC doesn’t have as much leverage as it thinks it has. The problem? Production realities. Sure, OPEC’s current policies might cause the shutdown of many shale oil operators. In fact, shale field permits are tanking along with the total number of rigs in operation in the United States. However, once the price of oil starts to spike up, shale operations can spring up once again just like mushrooms after a hard rain. Technically speaking, these operations are very resilient and can be restarted in a relatively short period of time. Prices will then start to trend down again.

The days of $100 a barrel oil are over 
Saudi Prince Al-Waleed Bin Talal is on the record as saying that $100 a barrel is not going to happen again in the future. He’s definitely on to something. Since shale and other operators can quickly spring back up if the price of oil starts creeping towards $100 again, this forms a natural market ‘brake’ against oil prices overheating again. This is actually good news because it builds a lot of supply predictability into the system. Overall, this check and balance system in global oil pricing might enable many countries’ energy policy planners to plan ahead better. The New Normal in oil might actually usher in a new wave of economic expansion due to the predictability the new market pricing dynamics bring to the table.

 

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