Saudi oil production, Donald Trump, and President Obama

The Saudis operate by posting prices for their refiners and then filling all orders at their posted prices.

It looks like the spike in demand for Saudi crude due to Libya has pretty much passed, and Libya is not back to full production.

So look for Saudi production to fall further when Libya comes back on line.

Prices, however, will remain at whatever level the Saudis decide to post, much like Donald Trump has been proclaiming. And with Trump having the President’s ear, there’s at least an outside chance the President figures it out and lets the Saudis know he’s on to them and works out a price cut?

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18 Responses to Saudi oil production, Donald Trump, and President Obama

  1. Mario says:

    here’s a Fed paper out of St. Louis on OPEC as price setter vs. OPEC at quantity setter and the macro effects of both. Rather interesting.

    http://research.stlouisfed.org/wp/more/2011-013/

    Reply

  2. ron says:

    Commodities other than oil are also affected by the deregulation of the futures markets:

    http://www.foreignpolicy.com/articles/2011/04/27/how_goldman_sachs_created_the_food_crisis?page=0,0

    The CFTC was supposed to reimpose position limits on speculators but has not yet acted.

    Reply

    Zaid Reply:

    I agree. Oil price rising has more to do with speculators than Saudi’s non-volitional pricing power.

    Reply

    WARREN MOSLER Reply:

    i’m right and you’re wrong on this one. simple point of logic.
    they are the only producer with excess capacity. no choice but to set price.

    Reply

    Zaid Reply:

    Warren, you misread my statement; I’m not disagreeing with the point of logic, namely that the Saudis do control/set the price. The question I’m raising is whether they know they have the power to set the price. It’s the same issue you raise with the Fed’s monopoly to set fed fund’s rate. No one is disputing that the Fed can set prices (i.e. interest rates), but you yourself suggest that they are not hitting their price target out of sheer ignorance. I suggest the same is true for the Saudis setting the price of oil.

    WARREN MOSLER Reply:

    well, they say they post prices to the refiners who then tell them how much they want at that price

  3. higher commission income?

    yes, been writing about them for a long time on this website

    Reply

    ron Reply:

    @WARREN MOSLER,

    If you don’t make the connection between the huge increase in futures market speculative activity and oil prices, you are missing the boat.

    The index funds are long-only and have introduced a vast pool of new money competing for each barrel of oil. Even Goldman admits that speculation is driving prices.

    Reply

    Matt Franko Reply:

    Ron,
    Consider the OPEC people look at the speculators as “useful idiots”. Resp,

    http://en.wikipedia.org/wiki/Useful_idiot

    Reply

    WARREN MOSLER Reply:

    in this case you are at least partially correct.

    any run up in prices must be ‘supported’ by the saudis increasing there prices or it is very short lived.

    this is a simple point of logic.

    Reply

    Zaid Reply:

    What happens on the way down if speculative activity turns the other direction? You’re saying the Saudis will change their formula to price crude to something other than the futures benchmarks?

    I’m still not convinced the Saudis realize they are contolling the price. By setting the price according to some benchmark, they have effectively relinquished control to the speculators. Their current formula sets prices of deliveries to Asian refiners as a premium/discount to the Omani and Dubai benchmarks, to European refiners in relation to Brent, and to US refiners in reference to the Argus Sour Crude index. That is a fact, and the only way to find out if they know what they’re doing is if speculators take the price down too far. Will the Saudis price change their forumula to set the price to some other target?

    WARREN MOSLER Reply:

    they just decide they’d prefer a lower price for whatever reason.
    maybe because they all get short in their personal accounts first.

  4. ron says:

    Warren-

    What should one expect the impact to be of a 10-fold increase in dollar volume in the oil futures market?

    Have you heard of the introduction of commodity index funds by Goldman-Sachs and others?

    Reply

  5. bobGS2030 says:

    what about the gas prices? the price per barrel is no where close to what is was in 2007 & 08, yet we are paying more at the pump, why? because BP has to make up for the potential losses? or is it caused by just plain greed?

    Reply

    Matt Franko Reply:

    Bob,
    Back then the refiners were I guess not in the best position to pass along the higher crude price in the refined product.

    Related I’ll point this out: It was right at about this time in 2008 (May) when Bush/Cheney started to apply the $650 per capita tax rebate credit to practically all taxpayers bank accounts (or just sent out checks if no direct deposit data on file).

    I think this helped us get thru the summer of 2008 without too bad an economic impact of the higher pump prices. Then chaos hit in Sep/Oct 2008 perhaps when the effect of that flow was over.

    This type of thing is of course missing from fiscal policy this year….. Resp,

    Reply

  6. leja says:

    Oh come on now, Saudis don’t just dictate prices, evidence in all too clear on that. Why would they drive up prices in ’08 and have them crash down on ’09, just for the fun of it? They actually increased production in ’08 and oversupplied markets but prices still went up.

    Reply

    roger erickson Reply:

    It’s certainly plausible that the Saudis, as dominant supplier, set the pricing floor. Anything above that depends on degree of pre-market access by speculators. Big peaks/crashes in oil use & prices just complicate things for producers, without net effect.

    ps: If Obama is on to the Saudis, you can bet he’ll just ask for a cut of the action, like the Bush family, not a cut in prices for the US electorate. Name 5 members of Congress that wouldn’t – and the guy from Vt doesn’t count.

    Reply

    Mario Reply:

    shit you may be right…in fact he may already know this now.

    I guess they flucuate prices to maintain some sense of credibility in the market?

    Reply

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