Saudi Arabia stimulates the economy and will keep oil price low
The Saudi King announced today a $400 Billion investment in the government run oil industry in hopes of restarting the economy during economic recession. Investors around the world should like this infusion of cash that will do much to improve economic vitality in the Middle East and should keep oil prices low for years to come.
During this slowdown it has become apparent that demand is also slowing. This decrease in demand from both the side of consumption and investment has aided in dropping oil prices from their $147 highs this summer to a more sustainable price in the mid $50s. With a new investment in oil infrastructure we should hope that the supply line coming from Saudi Arabia will be enlarged, increasing the number of barrels that can be produced and ultimately sold on the open market.
Lower commodities prices across the board is what economists have been saying this economy needed. With oil at just $50 per barrel, the amount of money the US exports for oil has dropped considerably. In 2005 alone the US imported 3.6 Billion barrels of oil. At a price of $147 that is roughly $530 Billion per year that goes overseas never to return. At today’s prices the US will spend just $200 Billion per year to import the same amount of oil. A drop of $300 Billion in the trade deficit is huge considering the current deficit is around $700 Billion dollars in 2007.
We should applaud the Saudi King’s investment in oil. It’s a gift to the United States to cut down on its trade deficit while the Saudi economy will be able to grow considerably with this large infusion. This is just what the US and Saudia Arabia alike were asking for.
