Saudi Uneasy With High Oil Price, Worried About Economy

Could be just talk or a prelude to a price cut.
No way to tell in advance- it’s a political decision on their part.

And it’s not illegal for them to place their personal and state bets first, and then cut price.
And it’s not illegal for them to cut any kind of a deal with anyone, anywhere in the world with regard to price.

In fact, it would be foolish not to.

Saudi uneasy with high oil price, worried about economy

By Cho Mee-young and Miyoung Kim

April 26 (Reuters) — Top oil exporter Saudi Arabia is uneasy with high oil prices and concerned about their impact on the global economy, the chief executive of state oil firm Aramco said on Tuesday.

Oil prices recovered from early losses on Tuesday, with Brent crude LCOc1 trading up 16 cents at $123.82 a barrel at 1059 GMT. Aramco Chief Executive Khalid al-Falih’s comments at an industry event in South Korea had weighed on sentiment earlier, when prices fell amid a wider decline in commodities.

“We are not comfortable with oil prices where they are today…I am concerned about the impact it could have on the global economy,” Falih told an industry gathering in South Korea.

There was no tightness in global oil markets, Falih said. His comments echoed those of Saudi Oil Minister Ali al-Naimi, who said last week that the kingdom had cut oil output in March as the market was oversupplied.

Unrest in North Africa and the Middle East and strong demand growth in Asia have pushed oil prices to their highest levels since 2008, triggering concern among consumers costly oil would harm economic growth and crimp fuel demand. OPEC producers also warned last week of the strain of high energy prices on economies still fragile as they emerge from the global financial crisis.

The kingdom has enough capacity to meet any spike in demand and plug short-term outages in supply, Falih said, adding that without Saudi spare capacity, oil price volatility would have been a lot worse when Libyan supply was lost.

OPEC’s largest producer boosted supply in February to above 9 million bpd to plug the gap left by fellow OPEC member Libya, where civil war cut exports. Saudi Arabia is the only oil producer with significant spare capacity to meet large supply outages such as that experienced in Libya.

Riyadh boosted capacity to 12.5 million barrels per day (bpd) in 2009, just as the global economic downturn cut demand. This left it with a supply cushion of over 4 million bpd, more than twice the spare capacity it targets of 1.5 million bpd to 2 million bpd. Output stood at 8.292 million bpd in March, down from 9.125 million bpd in February.

“People need to know that there are millions of barrels per day of spare capacity available,” Falih said.

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3 Responses to Saudi Uneasy With High Oil Price, Worried About Economy

  1. scarmani says:

    If the Saudis really are as concerned with high oil prices as they say they are, and they really have the more than 4 mbpd of spare production capacity they say they do, the solution seems fairly straightforward. All they would have to do is boost production above 10 mbpd for a few months, swelling crude oil inventories and driving speculators out of the market.

    Instead they cut back production by nearly 1 mbpd from February to March.

    Actions speak louder than words.

    The Saudis like to protest that they are meeting all physical demand, the market is oversupplied, etc. as if this is independent of the price, and as if they are not the price setters.

    But the painfully evident truth is the Saudis either cannot or will not sustain more than 9.5 mbpd production between now and 2015, cannot sustain let alone increase their net oil exports from current levels, and have effectively said as much:

    “Saudi Arabia expects its oil production to hold steady at an average 8.7 million b/d to 2015″ and “a larger proportion of production will be directed gradually toward meeting domestic demand, which is rising at a higher rate than expected average output growth, which will reduce the volume available for export” http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/8812036

    The IMF in its April 2011 World Economic Outlook has provided modeling of oil supply and demand elasticity and projected supply growth through 2015. http://www.imf.org/external/pubs/ft/weo/2011/01/pdf/text.pdf The projections add yet another confirmation to the notion that supply and demand are both highly inelastic in the short term with respect to oil price, and there will be negligible net additions to global crude oil production capacity for the next 3 years.

    It is evident to all but the most casual observer that the apparent attempts by the US and China to resume historical trend-line rates of economic growth between now and 2013 will result in a severe energy crisis => financial crisis, in which price-spike induced demand destruction (worse than 2008 financial market collapse) will be the only short-term adjustment mechanism. Unfortunately it seems nearly all observers are most casual.

    Reply

    WARREN MOSLER Reply:

    easier than that to lower prices. just lower their posted prices and market forces take them down to that level in short order, and quantity changes precious little

    Reply

  2. Paul M says:

    Warren,

    Could it be the Saudi’s are actually worried about the US releasing some strategic reserves in order to dislodge the speculation driving the price? The Saudi’s could be long oil still and don’t want to lose their shorts if Obama decided to do something decisively.

    Reply

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