Tuesday, December 30, 2014

Saudis Might Push Oil Price Even Lower

Saudi Arabia’s oil minister, Ali al-Naimi, said recently it was “not in the interest of OPEC producers to cut their production, whatever the price is...”

Naimi also said the Saudis might even raise their output to improve their market share (which would also lower prices further). "The best thing for everybody," he says, "is to let the most efficient producers produce..."

What exactly does he mean? Olivier Jakob, an oil analyst at Petromatrix Oil in Switzerland, spells it out in plain English. Jakob writes: the OPEC oil ministers “basically want oil prices to move lower to reduce production in the U.S.” There it is.

That's what monopolies do. If a monopoly can produce a commodity or product cheaper than anyone else (and Saudi Arabia has the cheapest oil in the world to produce — and also the most oil), their best bet in the long run, if they can get away with it, is to drop the price so low it puts all the competition out of business.

Oil prices are low and getting lower, and that's great. It will boost the U.S. economy while it lasts. If the Saudis get their way, eventually most of its competition will be dead and they can go back to gouging the world. The only way to get our economy off their roller coaster is robust fuel competition. It can be done now, and when they raise their prices again, our economy will keep humming. Let's hope enough of us see the wisdom to keep pursuing it while oil prices are low.