WHY THE SAUDIS AREN’T CUTTING PRODUCTION:

With oil trading at less than half of what it was last June, plenty of market observers have been surprised by OPEC’s decision not to scale back output to set a floor to the price. One compelling reason is that the cartel’s largest member is well prepared to ride out this bear market. . . .

At current oil prices, the Saudis can only muster up funds for some 83 percent of their total budget. The expected $39 billion budget deficit will be paid off from the Saudi sovereign wealth fund, which today is worth more than $730 billion. In other words, at current budget levels and oil prices the Saudis could continue as is for another two decades before nearing the prospect of default.

OPEC hasn’t cut production in the face of plunging oil prices because the Saudis have decided to compete for market share rather than induce a price rebound. The above numbers tell us why Riyadh has been so seemingly fearless in that quest to squeeze U.S. shale producers. But while the Saudis comfortably weather the storm, other OPEC members, like Venezuela and Iran (which run budget deficits when the price of oil drops below $123 and $140 per barrel, respectively) are having a tougher time adjusting.

Yeah, I’m okay with that. It’s also putting the squeeze on Russia, of course.