In what can only be seen as the end of its war against US shale oil, Saudi Arabia has announced that it is raising its official selling prices. This is a big deal because consumers in Asia, Europe, and the US will be affected. The new prices are set to kick in in April. That being said, the takeaway is that this is not going to put much upward pressure on the price of oil. While Saudi Arabia may be raising its prices, the fact remains that the United States, which is the world’s biggest consumer of oil, has so much oil that it’s running out of places to store that oil. Assuming that refinery operations pick up, there is more than enough oil to take care of US consumption.
Still, this is quite a big signal that Saudi Arabia is sending out. It can be a cause of hope for its partners. You have to remember that Nigeria and Venezuela are hurting really bad due to the depressed price of oil. They need the price of oil to be over $100 for them to sustain their economies’ massive deficits. At the very least, there is some sort of political gain to be had from this announcement. However, when paired with the fact that Saudi Arabia, behind closed doors, has been doing a lot of discount deals with Asian buyers, it is highly unlikely that this announcement of a price hike will cement the price of global oil for the long term. If anything, it would result in a minor uptick and the price of oil will continue to decline. For the global price of oil to permanently recover, global consumer patterns have to change, global consumer demand has to completely recover, and those pesky US oil stocks need to crash. I don’t see any of these three scenarios happening any time soon.