A Christmas Present from the Saudis

Why are oil prices falling?

Source: Arab News

The short answer is, because Saudi Arabia wants them to. A recent Wall Street Journal article notes that the Saudi oil minister, Ali al-Naimi, is concerned that North American shale oil producers are gaining market share at the Kingdom’s expense. Back in September oil was priced at $90 / barrel, at the low end of its recent price range. Naimi went on vacation, removing Saudi Arabia from a public debate over how OPEC should respond.

But by mid-October, as prices continued to slide, the Saudi minister met with his Venezuelan counterpart to see if they could forge some kind of agreement among OPEC and non-OPEC nations to reduce production. It didn’t work. Russia balked at trimming how much it pumped, claiming a cut could cause it to lose permanent capacity in some of its arctic fields.

Source: NASDAQ

So when ministers met in November, they maintained their levels, saying falling prices would be painful, but losing customers to shale would be worse. The result has been $55 / barrel for crude and $2.40 / gallon for gasoline. And US shale producers might continue to pump anyways—existing wells may be profitable even if it’s no longer cost-effective to develop new fields.

Lower energy prices will be an economic tail-wind for the developed economies of the US, Europe, and Asia. Saudi Arabia may not observe Christmas, but their production levels have given the world a nice stocking-stuffer.

Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
Leave a comment if you have any questions—I read them all!

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By |2017-07-17T12:23:08-04:00December 22nd, 2014|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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