Saudi Arabia’s move to cut the cost of its oil to US customers has injected fear into the oil markets, bringing the price of OPEC crude below $80 and suggesting to some observers that the cartel is preparing for a global price war.
OPEC production has remained level despite worldwide demand, and as a result, on Nov. 5, the cartel reported that its basket price – the average price of its leading grades of crude oil – had dropped to $78.67 a barrel the day before, the lowest in about four years. And US production has reached its highest level in more than three decades, creating a buyer’s market for oil.
Saudi Arabia cut its price for US customers on Nov. 3. Meanwhile, along with Saudi Arabia, Iraq and Iran, two other major OPEC producers, also are cutting prices to Asian customers this month.
The reason for the Saudi move is a matter of some dispute. Some observers of the global oil market view the Saudi price cut to US customers as an effort to undermine the boom in American production of oil from shale.
‘The market reacted to it very negatively, thinking, ‘Here we go, we’re going to have a price war in the United States,’ ‘ Anthony Lerner, a senior vice president of industrial commodities at brokerage R. J. O’Brien & Associates LLC, told The Wall Street Journal.
But another person familiar with the Saudi decision, whose name was not disclosed, told the newspaper that the aim was merely to lure US refiners to buy cheaper oil from Saudi Arabia and thus increase their profits.
This post was published at Zero Hedge on 11/06/2014.
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