While we gear up for a long day and evening tracking election returns, we should update our story from three weeks ago entitled “What Are the Saudis Up To?” There I wondered about the Saudi decision to maintain current production levels in the face of falling oil prices:
But could there be a more sinister reason? If oil prices keep falling, it will not only hurt some of the Saudis’ OPEC partners who have high production costs and big requirements for oil revenues to fund their governments (especially Venezuela and Iran), but it could put the squeeze on American producers, perhaps even leading to a domestic oil crash as happened in Texas and Oklahoma in the mid-1980s. “Our friends, the Saudis” wouldn’t do that, would they?
This morning the Wall Street Journal reports the following:
Oil prices tumbled to their lowest point in more than two years after Saudi Arabia unexpectedly cut prices for crude sold to the U.S., likely paving the way for further declines and adding to pressure on American energy producers.
Okay, so they’re preserving market share perhaps. But read on to this bit:
Meanwhile, Saudi Arabia raised the prices for its oil in other locations, including Asia, where the country had cut its prices for four consecutive months.
Market watchers had expected the Saudis to either cut prices in every major region, suggesting an intention to compete for buyers, or to raise prices across the board. Asia has been an especially competitive market for exporters in recent months, so the focus on maintaining market share in the U.S. was surprising to traders, some of whom interpreted the action as taking aim at U.S. shale-oil production rather than being driven by supply and demand. (Emphasis added.)
So “our friends, the Saudis” are only cutting prices for the U.S., eh. Good for motorists and consumers here, of course. But if Saudi Arabia (and OPEC generally) were a domestic corporation, it would be vulnerable to antitrust prosecution for predatory pricing. To be sure, “predatory pricing” is a dubious economic doctrine—except in a geopolitical context. If the Saudis were really our political allies, they’d be doing just the opposite, and cutting prices to customers for Russian, Iranian, and Venezuelan oil.
This is what happens when you have a president that foreign nations easily hold in contempt. Maybe we should crash the global market for the Saudis, by opening up our strategic petroleum reserve, fast-tracking the Keystone pipeline, and announcing the opening of large amounts of federal land for rapid development and production. But that would also require a president with . . . well, you know the rest.