The Saudi Oil Gateway to Global Stability 

The Saudi Oil Gateway to Global Stability 

Thursday, 5 July, 2018 - 09:30
Salman Al-dossary
Salman Aldosary is the former editor-in-chief of Asharq Al-Awsat newspaper
Some two and a half years ago, oil prices dropped to around $28, a matter which raised panic worldwide and left everyone rushing in to save the markets from any collapse. Run down rates are not something oil producing countries or consuming countries consider favorable.

Gradually, oil rates recovered, seeing the price per barrel touch on $75.

Today, despite the hike in oil rates, the very same alarm is haunting global markets once again.

Oil markets function on strange and complex grounds, because they depend on a bendy commodity that is unique to itself.

Soaring rates are undesirable as they could predicate a major global economic crisis, affecting not only buyers, but even producing countries. On the other hand, a steep decline stirs reluctance among exporters to invest in oil, therefore drying up the markets.

Globally, there is an overwhelming consensus on oil having to be tied to fair pricing so that it balances the interests of both consumers and producers alike.

Buyers do not look for a significant drop in prices, as it is harmful to them, just as much as pricey rates. 
 
Saudi Arabia, one of the world’s top oil produces, paved the way for an unprecedented oil deal between Organization of the Petroleum Exporting Countries and non-OPEC producers to roll back production by 1.8 million barrels a day, the measure which helped rebalance the market over the past 18 months and raised oil to around $75 a barrel, compared to $27 in 2016.

Riyadh, once again, announced its willingness to step in and compensate for any shortage in market supply, for its extraordinary ability to bridge the gap dug up by countries like Venezuela and Iran.

Venezuela’s capacity for oil production has been slashed by internal problems, while Iran faces inhibiting economic sanctions that will see the world market lose up to 900,000 barrels a day. 

Not to mention that neither Libya nor Angola’s production is stable.

All of which has practically reduced global supply to about 2.8 million bpd in recent months.

Over the last three weeks, oil production has dropped daily, with half a million barrels being lost in Libyan oil, 325,000 barrels from Canada and 300,000 from Venezuela, leaving Saudi Arabia as the sole gateway to make up the gap.

Saudi Arabia aims to balance the oil market, and not set a specific price for what is modernly known as black gold. 

The kingdom’s capacity to produce 12 million barrels per day makes it all the more integral factor in stabilizing the market. 

Even as Russia and other Gulf countries increase their production rate to compensate for the shortfall, Saudi Arabia is the only country that can dispel fears of emerging countries, and ensure that oil will not register jacked up prices that the world simply cannot afford.

As a leader in the oil market, Saudi Arabia has always demonstrated its skillful ability to wisely use its national stockpiles in a way which balances the oil market.

In the aftermath of the Iraqi invasion of Kuwait in August 1990, about 5 million barrels of Iraqi and Kuwaiti oil suddenly disappeared from the market. During the invasion’s early days, prices shot up to about $26 and then to $28 per barrel, worryingly reaching $46 in October that very year. Such rates at the time were considered a disaster for global economy.

However, Saudi Arabia played the largest and most important role in restoring stability to the oil market, forcing OPEC countries—despite them expressing a strong desire to exploit the situation and keep inflated prices-- to listen to reason and pump oil supplies into the market to compensate for what was missing.  It personally undertook replacing about 60 percent of lost production.

Surely no one can tell whether prices go up or down. 

Global economies may even witness a barrel standing at a $100 in the next few months, a hike in rates just as unpredictable as 2016’s staggering drop to $27 dollars a barrel.

Nevertheless, some producers and buyers are capable of controlling and stabilizing markets. 

Undoubtedly, Saudi Arabia comes across as the most reliable country for the task, given its solid strategy to strike a balance between supply and demand, and save the world from dire economic crises brought about by a volatile oil market.

Other opinion articles

Editor Picks

Multimedia