Saudi Arabia is not in crisis, but the economy is teetering on the brink, the International Monetary Fund (IMF) believes.
The kingdom’s net foreign assets fell for a seventh month to $654.5bn at the end of August.
Kuwait, Qatar and the United Arab Emirates have relatively more financial assets that could support them for more than 20 years, the Washington-based lender says.
So, what has triggered the change in behaviour by Saudi Arabia? “We have previously argued that there is no link between rig count and oil production because producers tend to first shut down wells in the least productive regions”, the IMF says.
Purchase prices and staffing costs were reported to be increasing in Saudi Arabia. Hence it generally has a huge spare capacity.
As a result, companies marginally increased their output prices. This explains the disproportionately large spare capacity of Saudi Arabia in the 12-member Organisation of Petroleum Exporting Countries (OPEC).
Less wealthy OPEC members have even fewer options. The group chose instead to keep pumping, allowing the subsequent price slump to squeeze competitors with higher costs.
There are still doubts over whether the strategy will work and the success or failure of the strategy will determine the fate of OPEC as an effective cartel in the long run.
Both the old and new methodology show US oil production peaking in April this year, but the speed of subsequent decline is higher under the new methodology.
Experts say OPEC’s statements are not important without a change of policy by its biggest crude producer Saudi Arabia.
But core OPEC members in the Middle East have much lower costs and are more anxious about losing market share to shale Oil producers in the North America.
