Q&A: Oil Price Slump Temporary amid Changing Supply Dynamics
Rigzone: And there’s always the price support resulting from heightened tensions abroad, right?
Arnold: Historically, one of the things that can boost the price of oil is a major “saber-rattling” geopolitical event that threatens oil supply. However, if such an event occurs and oil prices suddenly shot up, sending the price of gasoline up with it, that could create a pretty ugly political situation, where people blame the oil companies for the hike in gasoline prices.
One of the questions that plays into this is the ability to export crude. There are very sophisticated people that would say that the export of crude helps contribute to low prices domestically because it brings on more production. But the average person is going to think that if the industry begins to export crude, it will make it more expensive to fill up their tanks.
Rigzone: How likely is a rebound in prices without tensions elsewhere?
Arnold: With these very low prices, you’re planting the seeds for a rebound, because the overall economy benefits from lower fuel prices. Whether it’s truck transportation, rail transportation or the cost of manufacturing heavy equipment and so forth, lower fuel prices can translate into increased oil demand over time.
Rigzone: Is the downturn anyone’s “fault?”
Arnold: The way I see it is that the United States is the country that’s been increasing production dramatically. Saudi has been maintaining markets, which is not an unreasonable thing for a sophisticated player to do. But they haven’t been dumping on the market, nor have they decided to cut their own production, knowing that OPEC has a history of cheating by their partners.
Another thing that’s been in the back of my mind is that there used to be a close relationship between the Saudis and Washington, and through different administrations. I think the Saudis were very mindful of the impact of their actions in the United States in the last couple of decades. And now, you just don’t get the feeling that there’s the sensitivity about that relationship that there had been historically.
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