OK, I was feeling bad about not being nearly diligent, thorough, updated and expert enough in my long response from a few days ago to Akbar Palace and Ray regarding their hallucinatory allegations of Saudi price manipulations of the oil markets.
But then I came across this article on Twitter today and my jaw literally dropped due to how stupid it was! Seriously, my throwaway comment from a few days ago on a subject which isn’t even my dedicated line of work was a PhD dissertation compared to this stinking pile of BS!
So let’s get this straight, just for a laugh! We clearly live in an international era of the “national oil company”, and the “rentier state” that “balances its budgets from the proceeds of selling oil”, but the sublime genius who wrote this article, despite quoting the Saudi Oil Minister repeatedly denying that a price war was taking place, thinks Saudi Arabia is executing a “Rockefeller-style good sweating” of its rivals?!
This Rockefeller reference really cracked me up, especially when to provide ominous context the author reminded us that Rockefeller “ended up controlling 90% of the American petroleum market”.
So assuming the Saudis are indeed stupid enough to make an anachronistic Rockefeller-style play, how exactly would it end? However long it takes, let’s say 2-5 years as the article states, what happens then? Does an exhausted Putin hand over the shares to Gazprom or whatever, the leases to the fields, the keys to the tankers and beg the Saudis, “Take it all but please, just pay our pensions and our government budget!” :)
This would have to occur not once but several times across the globe for the Saudis to go from controlling 10% of the market to 90%. But Rockefeller operated 100 years ago in a shallow, primitive, private, opaque, unregulated and domestic market. It’s callous and maniacal to argue, as this article does, with no concrete data other than a copy-and-pasted price chart, that his bullying tactics and strategies would have any traction at all in today’s complex, global, well capitalized oil market.
Besides, I’ve already argued that Saudi Arabia can’t increase production substantially and sustainably on a whim (these things require the careful planning of many years of multi-billion dollar capital investment). So even if Saudi Arabia does singularly discount its product by a large margin, granted it would draw incremental demand that normally would go to other producers, but it might not otherwise perturb those producers all that much. This additional demand would eventually plateau, since it would consume all of Saudi supply, emptying it out of the market like a barren clearance rack at a local department store. That is why the oil price is determined at the margins of the fungible oil market as a whole, not at the individual margins of Saudi Arabian (or any other national) production.