In the wake of Khalid Al-Falih, energy minister for Saudi Arabia, telling reporters this week that the global oil glut has vanished and therefore its two-year long war to put U.S. shale producers out of business is over, analysts are debating which side is the true victor. Falih noted that once much of the record volume of oil in storage is sold off, his kingdom can resume its traditional role managing supply and demand: “We are out of it, the oversupply has disappeared.
“We just have to carry the overhang of inventory for a while until the system works it out.” While Falih did not outright declare that the campaign against the Americans has ceased, analysts note that his remarks strongly suggest his Kingdom has emerged from the battle triumphant. However, Quartz writes that “a three-week-long resurgence of US oil drilling after 21 months of decline suggests that Saudi and the US fought to a draw.”
Leonid Bershidsky, a columnist for Bloomberg View, believes that on balance the Saudis are the victors: “The North American shale industry knows now that it’s at the mercy of Saudi Arabia; the kingdom has more than 2 million barrels a day — perhaps even 3 million if necessary — of spare production capacity that it can use to flood the market again, drive down prices and render any ambitious American plans useless.”
But Bershidsky adds that victory has come at a terrible price for the kingdom: “At its current output level of 10.2 million barrels a day, Saudi Aramco is making $600 million a day less than if the oil price had stayed above $100 a barrel.”
Unlike in the U.S. where low oil prices have generally benefited the economy, they have ruined the Saudi one because it is entirely oil-dependent. Plus, says Bershidsky, “The Saudi victory is also hollower than it might be because some of the kingdom’s competitors did not retreat: on the contrary, they, too, boosted production.”
In speaking with the American press, Falih acknowledged his kingdom’s plan to diversify its economy under the leadership of Deputy Crown Prince Mohammad bid Salman: “But nobody has the intention of turning off the oil economy in Saudi Arabia; we’re trying to build it up.
“But what we hope while we’re doing this is the non-oil economy will grow even faster.” As for how quickly the global volume of stored oil will be sold off, he remarked, “That will remain to put a cap on the rate at which oil prices recover; we just have to wait for the second half of the year and next year to see how that works out.”