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Floating Saudi Oil: A Short-Term Game

There has been a lot of questions being asked with oil prices falling. What is the reason? Is it short or long term? Is it supply- or demand-driven, or both?

One thing that seems clear is that the Saudis are taking a position of letting supply and demand takes its course. This has to be a short-term strategy. Even if US shale producers go out of business because $55 oil doesn't make sense for them today, you have to figure that technology will eventually catch up. Unconventional production will become economical at $55, and, well, now the Saudis are stuck with a price cap of $55 long-term. So, all this approach is buying, is perhaps a few years.

Market movements like these aren't one-dimensional. But for middle east producers, this looks increasingly like a short-term play. It looks like that their stance is good for them in the short run, but in the long run they still have to face up to the reality of shale. Not just in the US -- but globally.