Analysis & Opinions - Bloomberg Opinion

For Saudis, Even a Small Oil Cutback Is a Big Deal

| Nov. 29, 2016

This week’s OPEC meeting about a global production cut is in crisis before it has even begun. Pre-summit discussions with non-member oil producers such as Russia were canceled. The Saudi Arabian government now warns that members may leave Wednesday’s talks in Vienna empty-handed -- an outcome that would be sure to trouble markets.

The confusion is understandable. Almost exactly two years ago, in the face of weakening prices, Saudi Arabia convinced the other members of OPEC that the best course of action was to do nothing. The new shale-derived petroleum being produced in the U.S. had upset OPEC’s traditional role: If members cut its output to boost price, they would only be inviting more shale oil to be produced in short order, rapidly eroding any resulting price gains.

Arguably, the same argument holds water today. Yet, now, Saudi Arabia seems eager to convince others to cut production. Why has Riyadh changed its tune?

For more information on this publication: Belfer Communications Office
For Academic Citation: O'Sullivan, Meghan.“For Saudis, Even a Small Oil Cutback Is a Big Deal.” Bloomberg Opinion, November 29, 2016.