Evans-Pritchard is a bit of a prat, having called for the collapse of the EU/Euro/global economy so many times that it's hard to believe he's still allowed to churn out another doomsayer article.

But doomsayers do have a nasty tendency to be right at least once. Will he be right this time around?

I liked this comment in the comments section: "There's no end to doomsayers. When they're wrong they just trot out another scenario like nothing has happened. The biggest financial disaster is the one that no-one sees coming. That's what happened in 2008. Few people really saw the problem. This time people are overreacting because they fear 2008 again.

Even the article itself admitted that many core economic fundamentals in the developed countries are quite solid, which supports the theory that the current market behaviour is simply an overreaction.

16 is the level that Saudi would intervene at. So it's a valid assessment.

What would they do? Do they still have the influence to force OPEC to cut production, or would all OPEC members want to do that anyway?

When ever I see your username I automatically think


"battyboy"

why do you say that with such confidence?

Saudi are already thinking about it. The budget is based on 27US$, and they are undertaking massive privatizations to shore up the balance sheet. 25 might be the number for all we know.

more importantly the shale producers are nowhere near profitability and all the money they raised in 2015 will run out in 2016. This may lead to a series of defaults as they won't be able to roll financing facilities (who would lend money to the sector now?). It's totally unpredictable.

GCR - Companies - Big third-quarter losses for Dubai’s Arabtec signal ongoing woes

Is this the foretaste of more to come? Wild/desperate pricing in the past finally exposed when losses cannot be rolled-over to new mega-projects?

Also, don't expect that turning the taps off will suddenly affect everything.

The demand simply isn't as high as it was.
The supply will still be huge given the reserves in place from the oversupply recently.

One of my roles when I lived in the ME was CI. At an industry conference dinner a drunk manager boasted that their easy oil UTC was 16. This was when oil was 110+.

Saudi can manage a couple of years of budget deficit. They let the oil price rise over the last few years so the unconventional industry and technology developed. Now it has they don't need the other players anymore and can buy the technology staff and expertise for cheap to develop their in house volumes.

But they won't let the oil price drop below the easy UTC as that is when it really hurts them. An easy way to raise the price is to actually start a war that prevents Iran from producing. That's why the tension bubbling is being turned up.

if 16 is the number for Saudis, it is 50 for the US producers. Already they are talking about a series of defaults in the US.

While I'd never bet against the US, saudis do have a bit of an advantage on oil. 16 is a very low number.

...aaaaand they are off!

That depends on how you look at it.

The US overall will do just find with oil at 16 bucks. It will hurt their oil industry, but that is a small part of their economy and will be more than offset by the reduced costs to everything else.

The Saudis on the other hand might have a marginal cost of 16 bucks that they can still pump at and cover costs of pumping, but something like 75% of their national budget is dependent on oil, and they need something like 80 bucks to balance the budget. So their finances as a nation will crater massively. They're going to have to firesale assets and raid their coffers and cut all kinds of costs to put off the day they go broke, which by some estimates will be as little as 5 years away. Running a dictatorship while enacting austerity max is not a happy or safe place to be. The peasants are going to start revolting.

The other thing is to consider is that a lot of the new US technology that is revolutionizing their oil industry is relatively nimble. It's not like huge north sea rigs that take decades of planning to get in place. Even if the Saudis succeed in bankrupting many of those producers, if the oil price starts heading back up again, new ones using the same methods (and quite possibly, the very same equipment) will be quickly up and running and start moderating the prices.

Even if supply gets moderated, there is still a huge international push to keep HCs in the ground, Apple looks to be working on an electric car which could give that market a huge boost, cutting emissions is still something that's going to reduce demand regardless of the price, and with US production being flexible enough to be able to restart quickly, the gulf could be in real trouble. They have populations way above what their land can really support, and oil and gas are the only things they have to trade, and they need to trade it at prices which it seems might be way above what actual prices could be for decades.

Would much rather be the US than Saudi...

Etihad Rail slashes workforce by a third.

Etihad Rail cuts 30% of workforce in restructuring initiative | The National

Well there is still some money around, we've just won a Prisons Contract. Guess they're planning on locking more people up.

In anticipation of more bounced cheques - it's not all bad then.

In times of austerity you need to focus on the essentials.