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Saudi oil policy will hold firm to market-led approach

Wednesday, June 8, 2016

Significance

The decision came three days after Saudi Arabia confirmed during an OPEC meeting that it intends to persist in allowing oil prices to be determined by supply and demand, rather than supply management.

Impacts

  • Saudi-Iranian competition over production levels and export markets will increase bilateral tensions.
  • Saudi production is likely to increase to fill the gap created by falling global stocks and low upstream capex impacts.
  • This will put OPEC cohesion under strain.
  • The return of Nigerian, Libyan and Kenyan production and a new price collapse would test Saudi non-intervention resolve.
  • Slower than planned progress in phasing out oil may require an output capacity hike post-2020.

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