WSJ (Saudis Plan New Export Cuts in Hopes of Lifting Oil to $80 a Barrel):
Saudi Arabia is planning to cut crude exports to around 7.1 million barrels a day by the end of January in hopes of lifting oil prices above $80 a barrel, according to OPEC officials.
The new strategy comes as the kingdom seeks to cover a large government spending boost. It said last month that it planned to increase its expenditures by 7% in 2019—the equivalent of about $20 billion—as the country struggles to fund ambitious plans to diversify its economy beyond petroleum products.
Crown Prince Mohammed bin Salman, the de facto Saudi ruler, has faced a sharp decrease in oil prices since October amid a supply glut. The brutal killing of journalist Jamal Khashoggi by Saudi operatives in October has also deterred foreign companies from working in the kingdom and investing in its economic development plans.
The new Saudi budget requires oil prices to rise to as much as $95 a barrel, according to an official with the Organization of the Petroleum Exporting Countries. But the kingdom would be satisfied with prices at $80 to $85 a barrel, a range that would limit its need to dip it into its financial reserves, according to people familiar with its thinking.
To cover proposed expenditures, Riyadh is set to reduce crude exports by up to 800,000 barrels a day from November levels.
Saudi Arabia exported about 7.3 million barrels a day of crude last month. That was already down from around 7.9 million barrels a day in November and 7.7 million barrels a day in October.
Brent crude, the global benchmark, rose 1.2% to just under $59 a barrel and WTI jumped 3.5% to just under $50 a barrel Monday after The Wall Street Journal reported Saudi Arabia planned to deepen export cuts.
The own-price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. Here are some calculations from my interpretation of the excerpt above:
- % change in quantity = (7.1 - 7.9)/7.9 = -0.11
- % change in price = (80 - 59)/59 = 0.36
According to me, the elasticity is -0.28. What am I doing wrong?
And one more thing:
The U.S. market will see the largest reduction in Saudi oil exports, according to an OPEC official. Overall, the export cuts would go beyond the six-month commitment it made in early December to OPEC. ...
Oil prices fell below $80 a barrel in October after Saudi Arabia turned up the spigots in response to U.S. pressure to replace sanctioned Iranian oil. The increase turned out to be more than the market needed.
President Trump is going to need to place another phone call to get U.S. gas prices back down.
