Saudi Arabia, oil prices, and China

Saudi Arabian officials recently stated that the kingdom is comfortable with oil prices in the $70 – $9o per barrel range; which is where oil prices have been for quite a while.  US consumption of gasoline has been declining for many months as a result of the high price of crude oil.  Historically, the Saudis would rapidly increase production to prevent rapid price increases that would lead to significantly reduced demand in the US.

Why is Saudi policy different now?  I believe it is because the Saudi government recognizes that China will pay practically any price per barrel, because maintaining China’s economic growth is critical to China’s domestic stability.  Dramatic reductions in oil use in China would signal reductions in overall economic output.  It is fairly well recognized that maintaining economic growth by any means necessary is the only method short of military repression that China’s government has for placating an increasingly restive populace.

The Saudis likely feel that risks of decreased demand in Western countries are offset by the massive cash flow they are receiving at today’s prices; which is driven by Chinese purchases.

Advertisements

2 Comments »

  1. […] doesn’t matter to the Saudis now if Americans shift to more fuel efficiency; demand growth in China shows the Chinese are willing to […]

  2. […] the case OPEC could increase production quickly to drive prices to a level more to their liking.  China is likely price-insensitive, as the country needs fuel to maintain economic growth rates for social […]

RSS feed for comments on this post · TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: