Saudi Arabia poised to be the oil Leader after the highest oil output by cutting down its crude prices relatively.
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Crude Oil Prices

Crude Oil Prices

From a $128 per barrel in March, a breath taking four year high hit in the crude oil prices, the NYMEX Crude oil prices today lingers a little below $100 a barrel. While the other oil producers in the Middle East are worried at such a steep decrease and Iraq is probably suggesting a control in the oil output to sky rocket the oil prices again, Saudi Arabia, a key contributor among OPEC, is all happy about it. “Saudi Arabia would like to see a lower oil price,” commented Saudi Arabia’s Oil Minister Mr. Ali Naimi.


Usually determined by the demand supply index in the market, China and India play a major role, with 14 % of the oil demand coming from them. With these economies slumping, and controlled oil consumption in US and Europe as well, the supply of oil has exceeded the demand, leading to the falling oil prices. Yet, Saudi Arabia, in the recent OPEC meeting at Vienna, suggested an increase in oil production by 1.5-2.5 million barrels per day. Mr. Naimi has shown serious concern over the slowdown in the global economy and the potential financial crisis, and has announced this step over its counterparts in OPEC, so as to further reduce the oil prices and support global economy.

According to Gulf Oil Magazine, Saudi Arabia produced 9.9 million bpd in May and would produce 10 million bpd in July, its highest production in 3 decades. The OPEC has been producing more than $31 million bpd, well above its current $30 million bpd OPEC oil output ceiling. With so much more oil pumped in the times when the supply already exceeds demand, oil prices are expected to plummet even further. A $10 decrease in the oil prices would improve the US GDP by 0.2 percentage points.

The Saudis showing this concern and acting as a swing producer comes as a generous step in these tough economic times. Though, this action has certain occult triggers that divulge Saudi to have a forefront among its competitors and a powerful hold in the global market.

Saudi Arabia has been the most caring for the U.S. slowdown and the Eurozone crisis. After all, the G20 member friends shall keep up the good ties with each other. The oil price collapse will be a felicitous stimulus to the tormented EU and potentially hit USA, further affecting the slowing global economies and prevent yet another global recession.

Moreover, with two of the OPEC cartels, Iran and Russia giving hard jitters, Saudi Arabia takes this one stop solution to indulge them in the extreme pressure of balancing their economy at crude below $100 a barrel. Iran has been a tough knot in the stomach of other Middle Eastern countries, with its overpowering nuclear program. The oil price reduction would pressurize the Iranians more than anything. Moreover, Saudi has not liked the recent veto by Russia in U.N.’s attempt to curb Syrian violence. So, hurting the Russian economy with lower crude prices is the Saudi way of teaching the Russians a lesson.

OPEC cartels contribute to 40% global oil production. And the OPEC prefers it that way, at least the Saudis does. The recent shale drilling in parts of United States and Canada, has been a bee in the bonnet. Hence, for these new bees, which are anyways very sensitive to oil prices, falling oil prices shall curb their intentions of oil boom anywhere in the near future.

The other OPEC countries may not like the idea of assuming the mantle of support in the global financial crisis. But there is little they can do. Saudi Arabia evidently holds the Oil hegemony not only in the OPEC Cartels, but on a global note.

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