– This is the script of CNBC's news report for China's CCTV on December 8, Tuesday.
Welcome to CNBC Business Daily, I'm Qian Chen.
Oil prices suffered a sharp decline during last night's U.S. trading as a result of a global supply glut.
The Organization of the Petroleum Exporting Countries' (OPEC) failed to reach an agreement to reduce production levels when it met on Friday.
Instead OPEC oil ministers dropped any reference to the group's output ceiling for the first time in decades.
This highlighted disagreements among members on how to accommodate Iranian oil supply in the market once Western sanctions are lifted.
Some observers believe, however, that OPEC's production level is now less relevant to controlling oil prices, because burgeoning output from outside the cartel would fill in any cuts it made.
"Why should it be up to OPEC to cut production when surplus production is coming from all over the world," said Vandana Hari, Asia editorial director at Platts, told CNBC.
Now the question is, how much lower will oil prices go and how much longer can Saudi stand?
As U.S. and Russian drillers prove more resilient that most industry watchers had expected, oil prices have stagnated, putting pressure on Saudi finances. Collapsing prices have meant dramatic declines in government revenue at a time when many political leaders are working to maintain social stability through liberal spending.
Last year, Saudi Arabia announced a $229 billion budget for 2015, its largest ever. As a result, the International Monetary Fund projects a 19.5 percent deficit for the kingdom this year. To cover the gap, the nation has burned through about $91.5 billion of its reserve assets, reducing total foreign reserves from a peak of $746 billion last August to a still-healthy
$654.5 billion in September, according to the IMF.
In August, the Financial Times reported that Saudi Arabia was seeking to sell about $5.3 billion in sovereign bonds per month through the end of the year. The Saudis' borrowing ability is considerable, but they could find themselves mired in debt, just as they did in the 1990s and early 2000s, said Matthew Bey, energy and technology strategist at Stratfor.
Saudi Arabia's rulers have long maintained stability with the help of welfare spending and subsidies. But as the oil dependent country's crude revenues sink, the world is watching for political troubles.
Social unrest in Saudi Arabia is unlikely to ratchet up significantly in the next few years, analysts tell CNBC.
But if crude prices remain low, and Saudi finances continue to deteriorate, King Salman bin Abdulaziz may find it more difficult to tackle civil unrest in the future. Falling revenue could exacerbate dissatisfaction among religious minorities, the upper class, or royals, analysts said.
However, there's been something bittersweet... analysts agree that overproduction by OPEC is hurting the U.S. market and alternate sources of energy such as shale.
[Jonathan Barratt, chief investment officer at Ayer Alliance Securities ] "074218 You can look at the statistics over in the US that is really hurting.Remember oil shale costs about $60 a barrel to produce. It's not profitable.When you look at the Baker Hughes rig counts, it's 61 percent lower than last year. When you look at exploration in oil, that's 71 percent lower.074235"
"There is no question that prices are going to continue to fall. The emotional impact of the latest OPEC meeting would suggest that prices might accelerate in their fall but I think the direction is obvious, they will get lower," Warren Gilman, chairman and CEO of CEF Holdings,told CNBC's Capital Connection, "But there's no question that oil is heading down to the low $30s (a barrel). Will they break the $30s to the $20s? That's quite a possibility in 2016," he added.
CNBC's Qian Chen, reporting from Singapore.