Experts say Saudi Arabia has the ability to influence the price of oil

Experts say Saudi Arabia has the ability to influence the price of oil

Most transportation today is based on hydrocarbon fuel sources. And despite dreams of a green energy revolution, that is unlikely to change in the near future, according to one of the most prominent American experts in Saudi Arabia.

The world’s largest oil exporter will continue to exert significant influence on crude prices because King Salman bin Abdulaziz Al Saud is willing to keep production capacity idle – but ready to ramp up at any moment – depending on the market’s direction, David says. Rundel, a longtime American diplomat in Saudi Arabia.

This is important, Rundel says, because oil demand will not decline in the near future. Projections of explosive growth in electric vehicles in the developed world—as evidenced in part by the Department of Energy’s EV30@30 Clean campaign, which targets sales of new electric vehicles by at least 30% by 2030—masks an inescapable reality.

“While the United States and Europe are in a position to move away from the internal combustion engine, most places where the growth is happening are not,” Rundel says. “They are all on bicycles and scooters, hoping to get a Hyundai. It will be a long time before they get a Tesla.” The International Energy Agency predicts that worldwide oil demand will continue to grow until at least 2030.

Rundel also points out that there is always a demand for petrochemicals, which are essential for manufacturing. Furthermore, freight transportation presents some of the biggest challenges when it comes to moving away from hydrocarbon fuels.

“These are energy-dense forms of transportation, producing a great deal of energy per pound of fuel, and batteries aren’t very good at that yet,” Rundel says. “It will take a long time before you can fly a plane or operate an ocean-going ship with a battery, because it will take up quite a lot of space. It’s somewhat the same for big trucks as well.”

tremendous influence

All are reasons why Saudi oil production will continue to play a decisive role in the price of gas. While the United States relies on Saudi Arabia for only 7% of its total petroleum imports (with Canada providing 52% and Mexico 11%), Saudi Arabia was the world’s largest exporter of crude oil ($145 billion) in 2019, according to the Observatory. Economic Complexity (OEC). Most exports are to the east, with 72% of Saudi crude oil and related products sold to Asian countries, particularly China and Japan. Moreover, the Saudi oil production company Aramco, which is under the control of King Salman, continues to follow the strategy of adjusting production according to the market price, with the aim of maintaining prices at the desired level.

“The Saudis play a pivotal role in the energy markets because they are the swing producers,” Rundel says. “They adjust production on a monthly basis to try to keep the market supplied and prices stabilize.” This does not always work perfectly, as was demonstrated during the early days of the COVID-19 pandemic, when gas prices fell due to a sudden drop in demand. But in general, the idea is to keep the price stable.

“They do it, not because they like us, but because it is in their interest that oil remains part of the global energy mix for a long time,” he says. They have a lot of oil and they want people to use it. They learned it in the ’70s when the price went up too much, they got greedy, and demand fell.”

There is a cost, Rondell says, but the Saudis are willing to bear. The country maintains a daily surplus of about 2 million barrels of oil, which costs billions of dollars to store, but can quickly bring it to market with a single call from the king.

He says, “Even Putin has limited power over oil production. But King Salman can make one call with Aramco. He has a lot of influence.”

Rundel says the Saudis’ ability to influence the market will only increase as other oil producers come under pressure to adopt zero-carbon targets, thus cutting back on alternative sources of crude.

Because in the end, he adds, a zero-carbon future does not mean a world without oil.

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