Rise in U.S. Oil Production has Proiminent Saudi Prince Freaking Out

Whether it’s the west Texas oil boom or the fracking boom in the Dakotas, the increase in domestic U.S. oil production has been a key factor in driving Saudi oil prices down. Prince Alwaleed bin Talal, the same prince who is also the second largest shareholder of Fox News’ parent company Newscorp., is a bit worried about his country’s ability to sell oil above its break-even cost.

A Saudi billionaire investor has sounded the alarm over the potential impact of falling oil prices on the Gulf kingdom’s economy.

In an open letter to Saudi ministers posted via Twitter, Prince Alwaleed bin Talal al-Saud expressed his “astonishment” at comments made by Ali al-Naimi, the oil minister, who reportedly played down the impact of oil prices falling below $100 a barrel. Prices have since fallen below $88 a barrel, or a quarter since June.

Prince Alwaleed, noting the kingdom’s 2014 budget was 90 per cent dependent on oil revenues, said belittling the impact of lower prices was a “catastrophe that cannot go unmentioned”.

The prince expressed similar concerns last year over the rise of shale oil, which, with weakening Asian demand, has contributed to the rapid slide in oil prices – despite geopolitical uncertainties in Iraq, a major producer.

His public broadside against the veteran oil minister came as analysts said the Gulf members of Opec, the oil producers’ cartel, led by Saudi Arabia, seem prepared to drive down oil prices to retain market share and fend off the threat of rising US production, despite the risks to their hydrocarbon-dependent economies.

“Saudi thinking has to be that lower prices are not so bad and Gulf states can cope, either by cutting spending or dipping into reserves or borrowing,” said Robin Mills of Manaar Energy Consulting. “$100 a barrel is too high – you get weak demand growth, so maybe if it cools off to around $80, the shale boom cools off and you get more reasonable demand.”

Gulf oil producers, most of which have large cash reserves, seem to be betting that the short-term pain of declining oil revenues from lower prices will close off competing supplies and revive the lowest global oil demand since 2009.

Oil prices are reaching levels that, if sustained, threaten the ability of some Gulf states to meet domestic spending commitments, forcing a drawdown on reserves or debt issuance.

Saudi Arabia needed an oil price of $89 a barrel in 2013 to balance the budget, up from a “fiscal break-even” of $78 a barrel in 2012, according to the International Monetary Fund.

Imagine the possibilities if the U.S. oil producers didn’t have to deal insane regulations and a left-wing base that has demonstrated a willingness to sellout America for Saudi interests.

Remember this?

One way to prevent the increase in supply from slowing the U.S. oil booms would be for Americans to be given a choice to buy products – including gasoline – made from domestic oil.

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