Here’s why the U.S. shale upstarts just might win a confrontation with Saudi Arabia as oil sinks: While the Arab nation is as flush with cash as ever, the finances of some fellow OPEC members are deteriorating quickly.
Venezuela, for example, has burned through billions of dollars to stave off default, leaving its foreign reserves near a decade-low. In Nigeria, officials are struggling to stem a selloff in the currency that has left it at a record low.
Those financial strains have Venezuela calling for action to prevent further price declines while a Libyan representative said the 12-member Organization of Petroleum Exporting Countries should cut its oil output target. When executives at American shale companies talk about having more staying power in a price war than some of the Saudis’ partners, these countries, along with Ecuador and Iran, are the key weak links.
“Saudi Arabia and the oil-rich Gulf monarchies can afford to take the long-term remedy as they have enough cash reserves,” Theodore Karasik, senior adviser at Risk Insurance Management, said by phone from Dubai yesterday. “Libya and Venezuela, on the other hand, need a quick intervention by OPEC.”