“It will not put American oil out of business. American costs are coming down pretty rapidly. There is a shakeup and a reorganization in the oil business as the weaker companies get taken over by the stronger ones. The “break-even” cost for fracking has come down from $60 or so and is close to $40 now. The Saudi keeping the price low by ramping up production is insuring that the ceiling in the world markets is declining continually. That is called “the market” and it works better when not hindered by government actions including “protection” of any kind. As soon as we begin to protect by tariffs or quotas we put a floor on the price of oil and disincentivize American oil from continuing to reduce costs.”
The whole problem with all that is:
1. The Saudi’s can sell oil profitably for ~7$ barrel. Can US producers get that low? Ever? I doubt it.
2. This is NOT a free market, it’s a cartel: Saudi’s set the price, we’re subject to it, whatever they want.
Is it good for America to be in that position?
I don’t think so.
A tariff keeps dollars in America and out of Muslimdom. That alone is a good enough reason.
But it also gives US oil producers the investment money they need to find cheaper ways to produce oil.
The Sauds can sell oil at $7 a barrel. Yes they can. But they cannot pay for their system at that price. They are suffering fom declining reserves at the current price. They are using up their savings. Meanwhile we are improving our methods. The Sauds will go broke or will cease being able to fund their own formidable welfare system and will face internal unrest they won’t be able to afford to cope with. The real Saudi floor is way above that $7. They are actually operating NOW below their floor. If they continue operating that way then they will go under as a nation, not a bad outcome. It is in American interest to keep the Saudi price as low as we can. It is highly likely that at the current rate of improvement our break even point will decline below $30 without knocking American oil out of business. $40 oil is enough to keep American companies producing and making their wells more efficient. Rig count has declined drastically but oil production has declined only a small fraction of that as we develop cheaper ways to get oil out of the wells remaining. Free markets favor the society yhay innovates. America and Israel are the most innovative societies on earth. We crimp that when we stomp down on innovation by “protecting.” Most conservatives tend to be free marketers except for whatever industry they are noticing on any given day. They can see the big picture generally but can only see today’s restricted view in particular cases.
They can’t sell at $7 bbl for long—locals will revolt due to no more free stuff from Saudi Gov—every other cartel member will open fire in their direction.