Will Saudi Arabia's Oil Policy Result In A Period Of Boom And Bust Cycles For The Foreseeable Future?

A pumpjack brings oil to the surface in the Monterey Shale, California, April 29, 2013. REUTERS/LUCY NICHOLSON

Robert Mosbacher, Foreign Policy: Saudi Arabia’s Destructive Oil Freeze

Riyadh has positioned global oil markets for a never-ending series of boom-and-bust cycles.

At OPEC’s December meeting in Vienna, the delegation from Saudi Arabia ignored the pleas of some of the bloc’s more economically fragile members, whose ranks include Nigeria and Venezuela, to cut output in order to halt the drop in crude oil prices. Instead, the Saudis insisted on maintaining production at its current levels. In the two months that followed, prices of Brent crude oil promptly fell from $40 per barrel to a low of $27 per barrel.

Since then, Saudi Arabia has agreed to “freeze” crude oil production at January levels, in an effort to stabilize global prices. But its strategy of helping drive that price down to $30 per barrel represents a serious miscalculation in its efforts to maintain control of the market. By taking advantage of an economic slowdown — primarily in China, where GDP growth has fallen by 30 percent — and pushing prices so low that very little new exploration makes commercial sense, Riyadh is planting the seeds of the next supply shortage.

Read more ....

WNU Editor: Booms and busts has always been the history of oil production .... but what is different now is that oil producers are learning to be even more innovative .... Turning to frack tech, stricken U.S. oil drillers test new limits (Reuters).