All:
FWIW: I think the Saudi's know a lot about the oil market. I also think they believe their actions are in their interest. So what exactly is their aim?
My speculation: They want to remain in a position to at least partially set price, so as the lowest cost producer ( <$10/bl) they are taking a page from Carnegie's playbook. Specifically, they want to: 1) Prevent rigs from drilling off the coast of Brazil. [Reserve Est 10-20MM bl/day . This oil costs net about $70/bl to extract, but once a well is dug it only costs about $10-15 to produce.] 2) They want to take some of the recent capacity additions, particularly from fracking and tar sands off the market. 3) They want to give some of the other members of OPEC a good spanking in order to instill future discipline.
I'm not sure how successful they will be. For sure they can keep Brazillian oil off the market. They can also cause a lot of dislocations in the U.S. oil and gas industry, and give the other members of OPEC a spanking. BUT...our [and a good deal of the rest of the world's] oil would still remain in the ground and should price head north of $40 for a substantial amount of time it's hard not to believe that, incrementally, frackers would gain confidence and resume operations.
OT: Now would be a great time to implement a fairly steep carbon tax. It would help our environment, spur alternate energy R&D, and we could use the proceeds to fix our infrastructure and pay a piece of the national debt. I would start with the grid. This is priority from all of the following perspectives: infrastructure, national security, and climate change. Just a thought.
Bill