There are plenty of reasons two major oil-producing countries are ‘fine’ with falling oil prices.
One of the stories going around inside the oil world is that the United States and Saudi Arabia have a common agenda and shared benefit to see lower oil prices. The benefits of lower oil prices for each country are different, but the objectives are the same. Both countries play extremely important roles in the oil markets.
The United States is at the top of the leagues both in terms of consumption and, recently, in production as well. For decades, the U.S. has been the biggest consumer of crude products in the world. Recently, the U.S. has also catapulted into the ranks of prolific producers as investments in shale oil, and fracking technologies may push the U.S. to become totally self-sufficient and energy independent.
Saudi Arabia is sometimes referred to as the oil market’s central bank. Not only does the country hold the biggest oil reserves in the world, it also has the lowest cost production per barrel and has the biggest spare capacity.
Spare-capacity measures how much extra oil a country can produce at any given point. And Saudi Arabia is the biggest producer of high-quality crude in the world. In addition, the country is an influential member of OPEC, which is responsible for the oil policies of the biggest-producing countries in the world.
A New Cold War
It’s no secret that the United States and Russia have been at odds for quite some time now, and the situation seems to have escalated so much that many political analysts believe this is the beginning of a second Cold War.
The timeline of conflicts includes Russia granting asylum to Edward Snowden, proxy fighting in Syria, annexation of Crimea and more. As a result of the actions of Russia on the international stage that the U.S. administration disagrees with, the U.S. has imposed sanctions on various key figures and key industries inside the former Soviet Union.
The U.S. realizes that all-out war with a nuclear-armed Russia would be catastrophic. Therefore, its objective is to squeeze Russia politically and economically. One of Russia’s biggest contributors to GDP is oil, and Russia has recently ramped up production so much that it’s rivaling Saudi Arabia as the biggest producer and exporter.
The flip side of the coin is that Russia has relied on oil exports as a way to generate cash and spread its influence. When oil prices come down, so do Russia’s cash reserves and regional influence.
Many inside Russia believe this drastic 25 percent slide in the price of oil has been orchestrated in the United States and executed in conjunction with some of its allies. A recent article in “Russia Today,” a Moscow-based news agency laid the blame squarely on the U.S.’ “dangerous fracking technology” for lower prices. While there is no smoking gun that the U.S. is actively manipulating the price of oil, the perception in Russia is that it is doing exactly just that.
