(Guest Post) Saudi Arabia’s Delicate Balancing Act in the Oil Market
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EOA’s Main Takeaways (7)
OPEC’s voluntary output cuts and its decision to hold monthly meetings triggered a clash with speculators, the media, and central banks. As a result, volatility has increased.
Oil market management requires LARGE production voluntary cuts that are announced monthly to keep the market in backwardation.
Current output cuts, or even larger ones, could remain in place until supplies are tight and backwardation can occur without voluntary reductions.
Saudi Arabia wants relatively high oil prices to finance its oil capacity expansion projects on the one hand and stimulate global upstream investment on the other.
Saudi Arabia and other oil producers are hedging against Western climate change policies through carbon capture and storage, the use of oil to manufacture materials required for energy transition, as well as through wind and solar power.
Renewable energy allows the kingdom to export more oil or use it to create materials without any additional upstream investment.
However, this is considered inflationary and would require higher oil prices. If green policies fail to reduce oil demand, the world will experience shortages.