The Paw Print
The news led to a temporary relief in the hideous decline in Oil prices
The Saudi Arabian national TV has recently announced that their king, Abdullah bin Abdulaziz Al Saud has died after being sick with pneumonia in the recent weeks. King Al Saud has been always referred to as the king of the reforms for the massive improvements and changes that he made in his country’s economical policies. The King was a supporter and enforcer of the deregulation policies and was also striving to improve and increase women’s rights. As we know, 90 % of Saudi Arabia’s GDP comes from Oil, and the recent decline in the prices of Crude Oil from 100$/barrel to 45$/barrel has hurt the Saudi Arabia’s economy in a significant way. The main international reason for this historical drop in the Crude Oil pries comes from the basic concept of supply and demand. While in the past the middle east has always been the major exporters of Crude Oil, in the recent years through a practice called “Fracking” the United States has been able to find and successfully extract huge quantities of Oil that were previously thought to be either too expensive to extract or just non-existent. This has led to an issue of oversupply in the markets and that has driven the prices down dramatically. While Saudi Arabia may have lost hundreds of billions of potential dollars, they are still considered the country with the lowest extracting and producing costs for this commodity and are easily able to keep operations running at full speed even at these prices. On the other hand the majority of the US corporations have much higher extracting and production costs and when the price of the commodity drops that much their profit margins get squeezed and some are forced to close doors simply because the price they have to pay to extract, refine, and transport the commodity is higher than the current market price. The only way the prices of the “black gold” will start stabilizing and slowly increase is through a worldwide cut in production, which no one wants to do, because it risks loss of market share to its competitors. The prices of Crude did initially jump after the news of the king’s death, due to people’s anticipation that there might be any type of change in Saudi Arabia’s production policy, but no such thing was announced, and Crude Oil soon gave back all of its gains and closed the week around the 45 $ level. Salman, who is 79 years old, will succeed King Al Saud, being his brother, and no major political or economical changes are expected to occur. However, some of the leading analysts of the markets predict some further volatility ahead for the “black gold” due to Saudi Arabia’s main role in this market. In turn this volatility doesn’t hurt Saudi Arabia as much as it does all other international companies who have to pay much more money in extracting costs and receive less and less at the end as compensation when they sell it.