And with markets mellowing, prices falling and demand simply unstable, an interesting debate is raging all around. Saudis (as indeed other producers) can’t afford an oil price slump — which media headlines are staring in front. Pundits are up in arms, saying the Kingdom will act sooner, rather than later, to avert stem the downslide. It has no other option, implying and accusing almost that the producers are least bothered by the woes of the consumers and the state of the global economy.
Oswald Clint, analyst at Sanford C. Bernstein thinks Saudi Arabia may reduce its oil output sooner than it did after the financial crisis in 2008, basing the argument on the premise that the Saudi authorities need oil prices above $85 a barrel to meet their spending obligations. Expenditures are rising. Only the power plants and electricity distribution networks upgrading required by 2020, would need more than $100 billion. The recent payouts announced for the citizens by King Abdullah in Saudi Arabia and the other oil rich Arab states are cited by other pundits too as a prime motivation for endeavoring to keep the prices high. And all this require money, and in abundance, they have been underlining.
Slugcatcher, the Western Australian energy writer friend of my good old friend, the gas pundit, Morten Frisch, underlining the point way back in April pointed out: Budgets, more than bullets and geology, have emerged as the driving force behind the oil price staying well above $100 a barrel, with Slugcatcher seeing $110 as the base price (not the ceiling) from 2015 onwards.
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