In a new look at Saudi Arabia’s decision to maintain high production levels for oil, energy finance analyst Elias Hinckley says the kingdom’s actions reflect its recognition that the age of fossil fuels is drawing to a close.
“The owner of the most valuable fossil fuel reserve on Earth just started discounting for a future without fossil fuels,” Hinckley writes. “While they would never state this reasoning publicly, their actions speak on their behalf. And that changes everything.”
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Analysis to date has suggested that Saudi Arabia is prepared to keep prices down for a couple of years to kill off competition from higher-priced shale oil producers in the United States. Hinckley cites a convergence of trends—including record global temperatures, the China-U.S. climate deal, and the growing consensus around stranded fossil fuel assets—to argue that Saudi Arabia “is seeing a new and massively changing energy landscape.”
With the end of oil becoming a reality, “Saudi Arabia wants its oil out of the ground, regardless of how thin its profit margin per barrel becomes,” Hinckley writes. “In a world where a producer sees the end of its market on the horizon, then every barrel sold at a profit is more valuable than a barrel that will never be sold.”
