VIENNA — Saudi Arabia showed little concern for fellow OPEC members by unilaterally cutting its oil prices to the U.S. this week, a move that casts doubts on the cartel’s credibility and its ability to find a common plan to stabilize the slumping energy market.
And while OPEC struggles to find consensus, oil prices risk remaining low — or falling further — to the benefit of consumers and businesses in the U.S. and worldwide.
OPEC is already riven by differences among its members on what the ideal price level should be. That is exemplified in the rivalry between Saudi Arabia, which can withstand lower prices, and Iran, which relies on a stronger market to remain profitable.
The Saudis’ unexpected move on Monday to cut prices to the U.S., aimed at protecting their market share there, will exacerbate those conflicts — weighing on the market and hurting most other OPEC members economically.
“At the end of the day, this is still the Saudis’ cartel, for better or worse — and for smaller members, this is definitely worse,” said oil analyst Phil Flynn, alluding to the fact that despite OPEC’s credo of consensus and unity, the organization is de-facto controlled by its top producer.
The prime motivator for the Saudis is to compete against U.S. shale oil.
Russia, which competes with OPEC, is hurting from low oil prices, and Saudis are tightening the vise — “seizing the opportunity to reduce prices, hit Russia and hit Iran in one go,” said John Hall, chairman at Alfa Energy.
