For the long haul, that is.
So, Saudi Arabia is now effectively targeting $100/barrel crude oil, instead of the $70 – $80 price range of the past several years. This is significant because Saudi Arabia is the only country that can (in theory at least) ramp up its oil production quickly if prices spike (say, in the event of an Iran-related affair).
Saudi oil minister, Ali al-Naimi:
The reasons for the shift, as the FT explains, mostly boil down to the growing amounts of oil export revenue needed by the Gulf Opec members to placate their citizens in the wake of the Arab Spring.
In 2009, Saudi Arabia voiced a lot of concern about relatively resilient oil prices bringing about demand destruction in fragile western economies. Perhaps the Saudi authorities are reassured by the fact that prices did average around $100 in 2010 (depending on your benchmark; Brent for example was $111 and WTI was $95). Despite the notorious price spikes in mid-2008, crude oil prices haven’t actually started averaging around the $100 a barrel level until the past year.
But it hasn’t been a very long experiment, so far.
Exhibit 1, the wayback history chart from BP’s statistical review (click to expand):
So, the world’s biggest economy has coped with $100/barrel these past few months. Sort of.
But then there’s the question of Saudi Arabia’s ability to impose its will on Opec, and by extension world oil markets. And Iran. But we’ll leave that one to James Hamilton.
Related link:
The oil hawks are living in cloud cuckoo land – FT