Saudi Arabia can produce enough oil to maintain a balance of power on the international oil supply circuit. The fact they have a few Middle Eastern counterparts who are on the same page, only enhances their power base.
North American producers have to keep in mind the Saudis can maintain impressive production levels and still make a nice profit on their easily obtainable light/sweet crude oil when it is priced at $40 or $50 per barrel.
North American producers also are reminded that the SA political agenda is a big part of this game being played using oil as the major bargaining chip. They are resolved to maintain their power base in the Middle East and on the world stage and are definitely not in favour of seeing Iran move forward with their nuclear agenda or with an overly ambitious oil production target. Keeping the prices low enough, keeps Iran in check.
The Saudis also see a need to keep Russia and the Putin regime under close watch on the economic and political scenes. Russian producers, like the North American oil producers, have difficulty keeping their oil patch humming with the WTI or Bent prices registering in the $40 to $55 range. In order to keep Putin in line, which is a tough task at the best of times, SA will do what is necessary with the biggest club in their bag and producers in the Bakken field are simply collateral damage.
The third facet of this global strategy that must be placed under consideration is the ongoing concern the Saudis might have with regard to the, up until now, unbridled growth of the oilsands in northern Alberta that, at one time, threatened their place as the No. 1 supplier of oil to the global marketplace.
We don’t have the numbers at our elbow regarding how much, if any, investment the Middle Eastern countries and companies have made in the Alberta and Bakken fields, but we expect, not much. Thus, the need to rein in those who were beginning to believe that they were in charge of the global markets in oil and gas transportation and sales systems.
We may not like the current situation but there is precious little that can be done about it.
In the past decades the Saudis have provided the balance of power, so to speak, regarding oil prices. They have increased or decreased their own production levels over the years to lend power and stability to the OPEC consortium as well as the overall oil marketplace. They would let it grow and thrive, as long as everybody sort of behaved and didn’t exceed production quotas or played too fast and loose with delivery and pricing targets.
But with unsettling issues arising in Iran and Iraq as well as with the Russian political scene and sensing that this was an opportune time to deliver a message to oilsands producers, the Saudis have re-claimed their status as the world’s No. 1 oil supply source and since they have one of the lowest cost-of-production models and an almost never-ending source of supply, they are calling the shots, until they no longer need to call the shots. That will happen when there is some acknowledgement as to just who the boss is when it comes to oil.
