Bloomberg: The Saudi Oil Blunder That Will Keep Costing

On May 25, 14 members of the Organization of Petroleum Exporting Countries (OPEC), along with 10 other oil-producing nations led by Russia, agreed to a deal that would limit oil production until March 2018. OPEC nations represent just over 40 percent of global oil production, reports the US Energy Information Administration, with Saudi Arabia and Venezuela among OPEC’s largest producers. With Saudi Arabia at the helm, production cuts were “all but decided,” declares Leonid Bershidsky for Bloomberg. Minister of Petroleum and Mineral Resources Khalid Al-Falih and members of the House of Saud are aiming to use OPEC’s cartel power to curtail supply and raise prices. One reason is that Saudi Arabia is planning an initial public offering to list Aramco, its national oil company, in 2018. For Bershidsky, production cuts are myopic, as Saudi Arabia should have continued the policies of Ali Al-Naimi, Al-Falih’s predecessor. He was more focused on preserving market share by undercutting their American shale competitors. Production cuts offer a temporary reprieve for oil prices, and the speed at which Saudi Arabia can diversify its economy will be a key determinant of whose policy was superior. – YaleGlobal