Nevertheless, by producing flat-out themselves, they are undercutting themselves - unless they have some plan behind their actions.
Don’t they generally do that to wipe out the competition when it gets too close? I am reading about the pooor saudi regime, but it seems like they ARE the ones who decide if production is to be cut.
There was an interview with the Saudi oil minister back when the price drop started, and the Saudis unexpectedly did not call for an increase in price. The minister admitted that OPEC no longer controls the price of oil, for a couple of reasons. First because of the amount of oil that can be produced outside OPEC. If the Saudis restrict output, the gap can be filled by Texas. So the result is Saudi Arabia loses market share. The second reason is that we are on the threshold of having viable replacements for oil used in cars. Electric cars have crossed the boundary of being novelty cars to production vehicles.
Saudi Arabia can't set the price so high that alternatives flood the market. Their only alternative is to undercut alternatives and compete for market share.
This means the price dip will probably last a long time, and every country that stays in power by buying the citizens now will have civil unrest when the money stops flowing.
I believe the plan is to get while the getting is good. The Saudis had cut production by 1m bpd before prices started to fall. When prices continued falling after their cuts, they probably figured the market had finally turned, and was starting to fall. Note that 15 years ago, oil prices were around $20 per barrel, and hovered between $10 and $20 for 15 years before that. In fact, it wasn't until 2004 before oil prices moved decisively above $40 a barrel. There's no natural law that says oil prices must be over $40 per barrel.
By the time oil prices started falling in late 2014, the Saudis had cut production by 1m bpd and had no doubt noticed that non-oil commodities had been in a multi-year bear market. My guess is that they saw today's collapse coming and decided to go all out. As it turns out, they were right to sell as much oil as they could at $80 per barrel. People like Harold Hamm of Continental who are predicting that the Saudis will fold are simply trying to justify bad decisions (i.e. borrowing hundreds of billions* instead of issuing stock to finance exploration) and prevent their credit ratings from collapsing and bank credit lines from being yanked.
When commodity prices crash, everyone produces flat out to pay the bills. Whatever dreams frackers and brokerages that line up financing for them have been spinning, oil is no different.
* To maximize personal gain at the cost of incurring significant risk of bankruptcy if Murphy's Law reared its ugly head, as in fact occurred.