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The fixed low marginal costs of Saudi infrastructure also allows them to keep the higher cost producers on a tight leash. If US domestic production gets too ro

by Phlarp 8y ago

The fixed low marginal costs of Saudi infrastructure also allows them to keep the higher cost producers on a tight leash. If US domestic production gets too robust for their liking; they can simply enforce a price regime low enough to put other producers out of profitability, and hold it there long enough that even the most cash rich extractors will pack it in and attempt to shift that capital to other ventures.

dahdum 8y ago
OPEC used to have that power, but not really any longer. U.S. / Canada production has steadily lowered production costs, cheap oil will bankrupt OPEC countries before it kills off US production.
- Phlarp 8y ago
  The glut of domestic oil all comes with higher extraction costs. While it's unlikely an OPEC embargo could affect the United States in the same way it did in the 70s, Saudi Arabia specifically can sell oil at a price that is mildly profitable for them but a loss for US producers. OPEC no longer operates as a perfect cartel; members cheat on the quotas that are set and not all OPEC members can hold the line as well as KSA can. With all that said, the 2015 oil price collapse did lead to significant reductions in domestic production, and it was partially driven by Saudi Arabia.
  - martinald 8y ago
    US/Canada is a net oil exporter now, so their power is pretty limited in an embargo style situation. Also, unlike the 1970s Saudi now has a much larger and ridiculously fast growing population - growing anywhere between 2 and 6% per annum since the 1980s. There is an enormous welfare state with very few taxes collected (on the basis the oil wealth pays for everything), but with a population growing so fast it is stretching the budget. This means KSAs power to hold prices low actually probably hurts them more than the US now - the social contract in KSA is that the government looks after you, and if you suddenly stop getting healthcare/housing etc because of a OPEC/US oil, it will start destabilising the country which obviously the royal family as terrified of.

by Phlarp 8y ago

dahdum 8y ago

OPEC used to have that power, but not really any longer. U.S. / Canada production has steadily lowered production costs, cheap oil will bankrupt OPEC countries before it kills off US production.

Phlarp 8y ago
The glut of domestic oil all comes with higher extraction costs. While it's unlikely an OPEC embargo could affect the United States in the same way it did in the 70s, Saudi Arabia specifically can sell oil at a price that is mildly profitable for them but a loss for US producers. OPEC no longer operates as a perfect cartel; members cheat on the quotas that are set and not all OPEC members can hold the line as well as KSA can. With all that said, the 2015 oil price collapse did lead to significant reductions in domestic production, and it was partially driven by Saudi Arabia.
- martinald 8y ago
  US/Canada is a net oil exporter now, so their power is pretty limited in an embargo style situation. Also, unlike the 1970s Saudi now has a much larger and ridiculously fast growing population - growing anywhere between 2 and 6% per annum since the 1980s. There is an enormous welfare state with very few taxes collected (on the basis the oil wealth pays for everything), but with a population growing so fast it is stretching the budget. This means KSAs power to hold prices low actually probably hurts them more than the US now - the social contract in KSA is that the government looks after you, and if you suddenly stop getting healthcare/housing etc because of a OPEC/US oil, it will start destabilising the country which obviously the royal family as terrified of.