Is this really something that would traditionally be called a wealth transfer?
The oil producers are mostly going to be selling all that oil at a profit, so they aren't expending any wealth. The Saudi's are foregoing holding onto a bunch of wealth by selling oil at low prices instead of cutting production, but they aren't transferring wealth to oil consumers, they are spending their wealth on the national budget there. Other producers seem a lot more inclined to cut production, so they aren't really transferring wealth either.
Many (most?) petrostates budgeted a much higher price for oil so the current market has them running giant deficits and dumping any easy to sell assets they have (sovereign wealth funds have been liquidating bonds and stocks). Wealth transfer sounds about right.
Yes, but as I at least alluded to in my comment, I think it is reasonable to describe most of that as a transfer of wealth to their citizens, not to oil consumers (if you assume that they are still earning at least a small amount on the oil they sell, which is likely true for Saudi Arabia).
Saudi Arabia ran a record deficit of $98bn last year (~16% of GDP). That's massive and oil wasn't so cheap the whole year so 2016 could be really massive. The government and citizens of Saudi Arabia have a lot less wealth because of the oil price downturn.
To pay for it they are slashing spending and liquidating non-oil assets. Their foreign reserves have gone down over $100bn from their peak and is down to four years at current spending levels. Who wins? Whoever was buying their oil.
Yes, I understand that consumers benefit massively. But they are selling the oil at a lesser profit, not selling it at a loss.
If there was an extrinsic way to say that the value of oil in that ground is higher than the price they are charging for it, then it would clearly be a wealth transfer. Short of that, I don't think it is so clear, it can just be sensible trade.
A dumb insulting analogy: I build you a dresser (pump oil) and use the money you give me to pay for part of a car (I spend the proceeds locally, but also spend more than the proceeds).
If the price for the dresser is fair, I'm obviously not transferring wealth to you.
Even if they are not technically selling at a loss (I actually suspect that they are, but in any case), their opportunity for a particularly high profit margin is something that is priced in to their outlook when they are looking to invest and purchase assets. If all of a sudden they don't have as many marbles to play with, they either need to liquidate assets they currently have to the control of foreign owners and invest more strategically (greater chance of using these marbles in non-wealth creating opportunities) or don't invest at all and lose all of these opportunities in the future.
I can transfer my wealth to you either by just giving it to you, or I can transfer my wealth to you slowly over time by not being able to invest in wealth generation at the same rate as you while my base investments depreciate.
The American oil producers are actually losing money or just breaking even on many of their drilling operations currently. This might seem like it does not make sense, but for many of these companies, the losses associated with this are directly related to their attempts to keep their employees employed. They are eating through cash reserves quite quickly. While this may not effect the very large oil companies like Exxon that drill world wide, this definitely affects the Sandridge, Devon, Chesapeake and smaller sized producers where the majority of their oil production is in the United States.
Sure, but they are going to bust, not keep pumping for 5 years. That is, if they can't actually make money at $40 (I am only a very casual observer, but it seems to be the case that some of them are at least in that vicinity).
>> they are spending their wealth on the national budget there
This is a good point. The Saudi's are rethinking many parts of their economy and attempting to get off of their own dependency on oil by making drastic changes:
The role of foreign investors in the economy has always been a controversial issue in Saudi Arabia, which follows an austere version of Sunni Islam. Yet as oil prices plummet to around $30 a barrel, authorities are racing to find alternatives to revenue from crude exports to finance a budget deficit about 15 percent of economic output.
The slump in oil prices has already pushed Saudi authorities to cut spending, issue more debt and draw down the kingdom’s foreign-currency reserves. Officials are also weighing plans to sell stakes in state-owned entities from hospitals to airports and even Saudi Arabian Oil Co., the kingdom’s biggest oil company, known as Aramco.
There's talk that in 5 years the Saudi's could burn through all of their foreign currency reserves at the current rate.
The oil producers are mostly going to be selling all that oil at a profit, so they aren't expending any wealth. The Saudi's are foregoing holding onto a bunch of wealth by selling oil at low prices instead of cutting production, but they aren't transferring wealth to oil consumers, they are spending their wealth on the national budget there. Other producers seem a lot more inclined to cut production, so they aren't really transferring wealth either.