A Good Thing about Price Wars

…on the geopolitical stage.  Dan Strumpf and Jenny Hsu talked about a broader question in their piece in The Wall Street Journal; I want to focus on one aspect of it.

Stiffening competition from countries such as Russia and Iran is threatening Saudi Arabia’s longtime hold over markets including China, Japan, and India.

It’s certainly true that stiffening competition is threatening Saudi Arabia’s longtime hold over market pricing; however a hold over markets is quite another oil well.  Saudi Arabia has held throughout this supply explosion’s depressing effect on oil prices that it’s not going to reduce production rates and sacrifice its market share—its hold on markets—on the altar of pricing.  Furthermore, the kingdom’s replacement of its aging market share hawk with a younger market share hawk would seem to indicate a continuation of the Saudis’ position that they will do what they need to do to preserver that share (and that hold).

So, what does competition do, particularly with regard to oil-hungry customers like the PRC, Japan, and India?

It generates a price war.  Don’t look for oil prices to rise significantly above current levels (OK, maybe they’ll go as high as $60-ish).

Russia and Iran can’t afford those prices; their budgets can’t hack them.  Saudi Arabia can, for quite some time, yet.  That alone makes this particular price war attractive.

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