Saudi Arabia is scheming a ‘petroleum price war’


September 27 , 2017 – Fort Russ News – 

KtovKurse – translated by Inessa Sinchougova

The authorities of Saudi Arabia are racking their brains in wanting to raise oil prices in order to reduce the growing budget deficit. The Kingdom is preparing to launch an “oil war” that will solve internal problems, but will create them for others.

In order to reduce the costs of the state budget, the authorities decided to stop subsidizing domestic fuel prices from 2018. What does that mean? The price of gasoline with an octane rating of 91 will increase in Saudi Arabia from 20 to 36 cents per liter or nearly 80%.

In 2017, the budget deficit of Saudi Arabia amounted to almost 15% of GDP, of which three-quarters accounted for the support of low gasoline prices inside the country. Government sources confirm that the cancellation of subsidies is aimed at balancing the treasury.

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It is clear that the kingdom is taking such a such a step not from a ‘good life’. Over the past three years, oil prices, which form the country’s budget by 90%, have fallen by almost half. It used to be possible to make ends meet due to currency reserves, but these are not infinite. So, from 2014 the volume of accumulated reserves decreased 1.5 times – from $ 737 to $ 487 billion.

Analyst of Qamar Energy, Robin Mills warned that the decision of the Saudis will allow the budget to withstand lower oil prices than even now, which will allow the country to unleash a new price war for dominance in the market.

The main goal of the “war” will be slate producers in the United States. The recipe is simple – in order to “strangle” the shale oil it is enough to lower the price of “black gold” to $ 30-35 per barrel, which is the average cost threshold for the American shale oil.

Experts believe that if oil prices remain above $ 50 per barrel, the resource production in the US will continue to grow by 1 million barrels per day annually until 2020, taking more than half of all new oil demand in the world (demand for oil is growing by about 1.5 million barrels per day per year).

For Russia, a critical mark will be the price of $ 35 per barrel, if it goes any lower, then the state-owned Rosneft will become unprofitable.

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