Raymond James Energy Stat of the Week
by J. Marshall Adkins
Energy Stat: Is Saudi Pushing Down Oil Prices Because It's Afraid of LNG?
November 17, 2014
In our Stat from October 20, we laid out some possible reasons for why Saudi Arabia has been deliberately allowing oil prices to fall. The fact of the matter is that outside observers have no way of knowing whether Saudi is doing this for purely economic reasons (i.e., to curtail non-OPEC oil supply growth), on strategic/geopolitical grounds (i.e., to damage the economies of its Iranian and/or Russian adversaries), or some combination thereof. Today we will lay out another possible motivation for Saudi's stance on oil prices - and this one is not directly tied to oil supply/demand. Specifically, we are referring to the competitive threat from liquefied natural gas (LNG). While it may seem far-fetched - and, to be clear, we don't view it as the sole explanation - Saudi may be attempting to prevent greater penetration of LNG in the Asia-Pacific region. Insofar as LNG represents a partial substitute for crude in countries such as Japan and China, Saudi's desire to boost its market share has some plausible read-through for LNG. Is this a credible basis for Saudi behavior or a crazy tinfoil conspiracy theory? We report, you decide.
This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.
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