Recently, the oil price was going down. It is the
result of oil’s price war against U.S., Russia and Iran from Saudi Arabia to
implement its oil market share stabilization policy. They increase oil production
and cut oil price. Therefore, the global oil price is dropped. What are the United
States’ reactions?
According to the article, the Saudi dump oil on the United
States by selling oil below the global price because they want to slow down the
growth of shale production. On the United States’ side, they have several
weapons to counter the Saudi. First, since the oil price is cheap, the United States’
government will buy more oil. Therefore, they will get benefit from this cheap
price, and this price support amounts to place a price floor under the United
States’ oil price. Second, they can set a tariff. This tariff will rise up the
oil price to against the Saudi. However, WTO’s rules state that outlaw imposing
tariffs on non-agricultural goods. Third, the United States can set a quota on
the exports of Saudi oil to the United States. However, this quota will be more
harmful and less effective, as the Saudi oil exports to the United States has
diminished with the increases in domestic shale production. Lastly, they can
also lift the oil exports ban. Although this measure can help the shale
industry, it will lower the global oil price.
In conclusion, business is war, and imposing tariffs
and quotas are main weapons of government to against other countries.
References:
http://search.proquest.com.proxy.sau.edu/docview/1624954299/E13E497903144982PQ/6?accountid=28567
If Saudi Arabia is attempting to slow the growth of shale production then in order to reach this outcome they are really putting themselves in an awful situation. Eventually the Saudis will want to bring prices back up but with the prices so low right now Americans are buying more gasoline than perhaps they need, meaning that there will be less demand for oil whenever prices do go back up because of the current excess being purchased. Basically, it is going to be extremely difficult for Saudi Arabia to rebuild its old prices. Furthermore, if it ever returns to its higher prices then money will once again be put towards developing alternatives for foreign oil. It is for these reasons that I don't really believe that Saudi Arabia is cutting prices just to hurt the American shale production industry, but perhaps also to punish other members of OPEC as they have in the past.
ReplyDeleteI wonder for how long these low prices will continue? How long before the Saudis raise the price back to the world price? Seemingly there are two factors that come into play. Firstly, how long can they continue to sell at these low prices? At what point does this begin to hurt them to the point where they must raise the price back again? Secondly, how long can shale production growth be slowed until it inevitably occurs? I can see these low prices trying to discourage this production, but in my opinion it is a matter of time before shale production growth in a much larger capacity.
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