It’s a simple rule of economics

CONTRARY to what most of the international media is trying to convey, Saudi Arabia does not shoulder the sole responsibility for the drop in global oil prices. Let's try to understand how complicated the oil market is for a single producer to control its prices. First and foremost, there is no way to escape facts. We are going through one of the deepest slumps in the oil prices the world has witnessed in more than 20 years or so. Companies that have been reaping record profits in the last two decades are heavily cutting costs affecting along the way manpower, explorations and production. Roughly two thirds of rigs have been decommissioned and estimated 250,000 workers in the oil industry have lost their jobs as reported by The New York Times. Prices now are hovering around the $30 a barrel, a price the world has not seen since 2004.

As huge as it might seems, the oil market still adheres to the most basic formula in economics, it is affected by supply and demand. And that's exactly what most of the media is trying to dance around when it comes to the Saudi oil policy; in order for the prices to rebound, Saudis must cut the supply. In other words, Saudi Arabia as one of the largest oil producers in the world is the one who should take the responsibility and make the sacrifice. It is not as simple as that. While Saudi Arabia has been keeping its production steady for some years now, the market has witnessed other factors that affected its supply and demand economics. For once, United States has nearly doubled its production and started to export more of its oil competing with others in the international market. Iraq and Canada production and exports are also on the rise, and not to forget Russia and its steady oil production. Moreover, the market is expecting to see Iran as a new player on the international scene after lifting of the sanctions. Even if we look at the demand side, it is also weakening as production technologies and transportation industry are becoming more fuel-efficient. For that, it is more than Saudi Arabia cutting its production to stabilize the market. And that what Saudi Aramco Chairman Khalid Al-Falih said at a latest panel discussion hosted by CNN, "We are not going to accept to withdraw our production to make space for others. "This is the position that we've earned...we are not going to leave that position to others," he added. Currently, economies that are dependent on oil are suffering; countries like Venezuela, Nigeria, Ecuador, Russia and Brazil are taking drastic measures to keep their economies working. In the United States, Alaska, North Dakota, Texas, Oklahoma and Louisiana are facing economic challenges and about 40 companies in North America have filed bankruptcy, as reported by The New York Times. Saudi Arabia, although affected by this price drop, its logic is simple, "Why should we lose market share in order for others to benefit from the rebound?"

"Saudi Arabia has never advocated that it would take the sole role of balancing market against structural imbalance," Al-Falih said at the CNN panel. "If there are short-term adjustments that need to be made and if other producers are willing to collaborate, Saudi Arabia will also be willing to collaborate," he said. The bottom line is that even with the political powers that play a major role in the oil market economies, it is still a game of supply and demand, and Saudi Arabia should not be unfairly asked to sacrifice its competitive advantage in order for others to produce more and export more at its expense. Oil prices are not expected to recover any time soon. It might take another year or so for the prices to reach at least 60 percent of its former prices that were hovering around $100 a barrel. A lot of things and changes could happen during this year and we can only wait and see. However, after all, this has always been the nature of the oil market, high peaks and deep valleys that keep the world on its toes.