Baku, Azerbaijan, Jan. 21
By Aygun Badalova - Trend:
More US companies will collapse this year as the result of the Saudi Arabia's strategy to keep oil prices low, Gal Luft, co-director of the Institute for the Analysis of Global Security (IAGS), a Washington based think tank focused on energy security, and a senior adviser to the United States Energy Security Council believes.
"The Saudi plan is to keep prices low enough for long enough to drive the American oil industry out of business," Luft told Trend.
He believes Saudi Arabia is willing to pay the social cost of low oil prices for the greater good of keeping its market share and hegemony.
And the strategy seems to be working, according to Luft.
"Last year 45 American companies went bankrupt and this year many more will collapse," Luft said.
Saudi Arabia, ranking first among OPEC member countries in terms of crude production, was the one who pushed the cartel's strategy shift last year to defend market share rather than cut output to support prices, which have already decreased to a 12-year low with WTI price fell below $27 a barrel.
Saudi Arabia's current budget is reportedly based on an average oil price of about $40 a barrel.
Analysts of the British economic research and consulting company Capital Economics believe that oil production in Saudi Arabia is likely to be kept high.
"But as oil exports from Iran are increased following the lifting of sanctions there will be little scope for Saudi Arabia to raise the oil output further," analysts said in a report, obtained by Trend.
This will weigh on growth in the oil sector, they believe.
Saudi Arabia produced 10.2 million barrels per day in 2015, according to the estimates of the US JP Morgan bank. The country's production will amount to 10.4 million barrels per day in 2016 and 2017, the bank's analysts forecasts.