With Brent crude oil falling on Monday below $54 a barrel for the first time in more than five years, it is clear that Saudi Arabia is making a massive $750 billion bet in 2015 that the oil kingdom can endure lower oil prices longer than other major oil producing countries both within and outside OPEC, even including American shale.
A flood of new oil from U.S. shale producers and Canadian tar sands companies coupled with softening demand from China may have set the stage, but Saudi Arabia is now firmly driving the process that has seen oil prices plunge in a matter of months. Starting in October, Saudi Arabia indicated to global markets that it would not materially cut production alone and would restrain itself from cutting production unless other major oil producing countries also joined in such an effort.
“The most important thing for the Saudis is market share,” says Prof. F. Gregory Gause, a Saudi expert at Texas A&M University. “They are not going to sacrifice it, they will play chicken with other producers, whether Iranian or American shale producers, in order not to lose market share and the only way they will cut production is if they get an agreement with a broad array of OPEC and non-OPEC producers to take a fair amount of oil off the market.”