Saudi Arabia’s Opinion About the Price of Oil No Longer Matters

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Brad Plumer reports that Saudi Arabian officials used to say they wanted oil prices to be around $75, but now they say they prefer $100. What’s up with that?

In a word, spending. Over the past few years, the Saudi government has taken advantage of sky-high crude prices to spend lavishly on public works and social programs to stave off the unrest that’s capsizing parts of the Middle East. As a result, the country now needs prices of at least $80 per barrel to balance its budgets….It’s not just the Saudis, either. A 2011 report from the International Monetary Fund found that the “break-even” point for the world’s major oil producers has been rising at a shocking rate. Russia now needs crude prices at roughly $110 per barrel to shore up its finances. Iraq, Bahrain, Algeria, Iran and the United Arab Emirates all need prices between $80 and $100 per barrel.

This is a bit of a pet peeve of mine, so I’d like to offer an alternative explanation. Here it is: Neither the Saudis, nor anyone else, control the price of oil anymore. Saudi Arabia has very little spare capacity to speak of, and couldn’t open the taps to bring the price of oil down even if it wanted to. So no matter what the price of oil is, that’s approximately the price the Saudis say is fair. That way they don’t have to admit that they no longer have the ability to seriously affect oil price movements.

This, by the way, is the same dynamic at work in OPEC meetings. They meet, they talk, and then they release a statement saying that they aren’t going to increase production quotas because the current price is fair and “customers aren’t asking for more oil.” Well, of course they aren’t. By definition, customers aren’t asking for more oil as long as oil is selling at the market-clearing price. Which it is. Because if it’s not, then the price goes up, and guess what? Markets clear and customers aren’t asking for more oil. Nonetheless, this charade regularly gets played out anyway, because OPEC doesn’t want to admit that their production quotas are mostly meaningless these days. With occasional exceptions (when the 2008-09 recession temporarily cratered oil demand, for example) OPEC countries are all pumping flat out and couldn’t deliver much more oil if they tried.

Bottom line: be suspicious of any explanation that suggests OPEC or Saudi Arabia or anyone else “wants” oil prices to be at a particular level. There was a time when they really did, and when their opinions mattered. But that time is long gone.

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is the first thing despots go after. An unwavering commitment to it is probably what draws you to Mother Jones' journalism. And as we're seeing in the US and the world around, authoritarians seek to poison the discourse and the way we relate to each other because they can't stand people coming together around a shared sense of the truth—it's a huge threat to them.

Which is also a pretty great way to describe Mother Jones' mission: People coming together around the truth to hold power accountable.

And right now, we need to raise about $400,000 from our online readers over the next two months to hit our annual goal and make good on that mission. Read more about the information war we find ourselves in and how people-powered, independent reporting can and must rise to the challenge—and please support our team's truth-telling journalism with a donation if you can right now.

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