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Bloomberg: Saudi Arabia Just Dumped Its 2-Year Policy Of 'Pump-At-Will'

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Bloomberg: Saudi Arabia Just Dumped Its 2-Year Policy Of 'Pump-At-Will'

Saudi Arabia's oil policy has remained consistent over the years: Pump as much oil as possible to flood the market and sell at any cost. There were many reasons for this policy to stay in place, perhaps the most notable of which is every one barrel of oil the country sells at any price is one less barrel of oil its rival Iran can sell.

On Wednesday, Saudi Arabia's oil policy has changed. According to Bloomberg, the country's policy of "pump-at-will" and "flirtation with free oil markets" is no more.

Saudi Arabia's former oil chief Ali Al-Naimi famously said that it doesn't matter if oil prices were to go down to $20 a barrel as it is "irrelevant." The new oil boss, Khalid A. Al-Falih now believes oil prices need to rise to encourage long-term investments.

Related Link: The "Key Concern" For Global Oil: Saudi Arabia

Saudi Arabia's decision to agree to an OPEC oil output freeze on Wednesday stems from its "tattered finances," Bloomberg added. The country has the highest budget deficit among the world's 20 largest economies and now faces a legal uncertainty following a U.S. Congress vote which now allows Americans to sue the Saudi government for its involvement in the 9/11 terrorist attacks.

The consequences of Saudi Arabia's new one-day-old oil strategy could be severe. As noted by Bloomberg, oil giants such as Exxon Mobil Corporation (NYSE: XOM) will be tempted to bring back to life abandoned projects given the higher oil prices. Russia and other non-OPEC oil-rich countries could also take advantage of the higher prices or undercut Saudi Arabia.

U.S. shale producers that fought back against an OPEC onslaught will now also be tempted to take advantage of higher oil prices and drill new wells.

The United States Oil Fund LP (ETF) (NYSE: USO), which attempts to track the daily changes of the spot price of light, sweet crude oil (from Chushing, Oklahoma) based on the daily changes of futures traded on the NYME, closed Wednesday's trading up 4.93 percent at $10.65.

The iShares MSCI Saudi Arabia Capped ETF (NYSE: KSA) closed down 1.57 percent Wednesday at $20.33.

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