It seems the Saudis are more interested in grabbing market share than in attending to the present state of the market.
That move seems calculated to undercut the effect the United States has on global oil markets, even though that effect is indirect.
But make no mistake: Russia is the country that will suffer the most as oil prices drop.
Thanks to the Saudis, this could get ugly very quickly for Putin…
Growing Supplies and Falling Prices Hurt Russia the Most
Up until now, Russia was in a strong position, with the ruble trading at more than 41 to the dollar, an all-time high.
But what’s propping that price up is oil. You see, 60% of Moscow’s central budget is dependent on the international sale of oil and natural gas.
And the 2015 budget projections from the Kremlin are based on oil at $90 to $95 per barrel.
With the current price (West Texas Intermediate) around $82, and dipping below $80 intraday, that budget collapses.
How Low Can Oil Prices Go?
There’s a lot of jawboning going on these days about how far oil prices will fall before a floor forms. Not too long ago, we were having a similar conversation on the expectation that prices would be moving higher.
How quickly things change.
The essential fallacy in all of this is the patently false assumption in the background. Most projections assume that whatever movement is taking place now will continue into the future.
Oil went up last week? Then it will go up again this week. And the week after. That’s the fallacy.
Retail investors can’t think like that. They need to take the long view. It’s the flash boys that gyrate stock and commodity prices in the short-term to wrestle marginal profit.
And what is happening currently with oil prices has nothing to do with the long term.
In fact, these days the average investor in energy prospers by setting up a strategy with specific companies, not by following broad sector trends and daily gyrations.
However, one traditional consideration has resurfaced as a result of the current extreme volatility.