How Saudi Arabia Has Been Mastering The Oil Market

Ever since it turned into the world’s largest oil producer back in the 1970s, Saudi Arabia has been the master the oil market by playing three roles effectively.
The first role has been that of the “sole stabilizer,” filling the occasional gaps created by production shortfalls by major oil producers to stabilize the oil market. Like the 1970-72 gap created by the decline in US oil production; the 1978-80 gaps created by the Iranian revolution; and the 1990-1 gaps created by the Iraq-Kuwait war.
Sometimes, Saudi Arabia filled this role at great cost. “The Saudis remained firmly committed to, indeed almost obsessed with, the role they were playing as the sole stabilizer of world oil markets,” writes Matthew Simmons in Twilight In The Desert: The Coming Oil Shock And the World Economy. ”The kingdom was spending a steadily increasing amount of a diminishing resource — its money — to make sure it always had about 1.5 to 2 million barrels a day of spare capacity in the event the world needed a jolt of more oil.”
The second role has been that of the good Arab brother, who used oil as a weapon against countries that disagreed with its Middle East policies. Like the 1973-74 oil embargo, which sought to punish those countries that sided with Israel, including the US.
“King Faisal’s frustration boiled over into anger when the Nixon administration announced late October 1973 that it was about to re-arm Israel,” writes Matthew Simmons. “No longer able to trust the US intentions, Faisal responded by unleashing his ‘oil sword,’ a threat he had occasionally made in hopes of encouraging a more even-handed US policy towards the Middle East.”
And the third role has been that of the ruthless competitor who capitalizes on the lack of reliable oil data to take the oil market on a rough ride. Like the artificial oil glut caused by bad oil data in 1997, which eventually led to sharply higher oil prices.
Saudi Arabia’s role as a ruthless competitor has been further revealed recently, as the kingdom refused to cut oil production to eliminate a glut in the oil market caused by weak oil demand and a larger production by the rise of American frackers and the return of Iran to the oil market.
But there is a big difference this time around: America, not Saudi Arabia, is the world’s largest oil producer. This means that, unless Saudi Arabia manages to drive every single American fracker off the oil market, it can no longer effectively play any of the three roles it has filled this far.

http://www.forbes.com/sites/panosmourdoukoutas/2016/08/07/how-saudi-arabia-has-been-mastering-the-oil-market/