The Saudi oil minister has announced a cut in Saudi oil production, claiming that there is "too much oil on the world markets," although recent reports suggest that US inventories are plunging, http://www.commodityonline.com/futures-trading/technical/Crude-oil-surges-on-US-inventory-data-23374.html , and longer term data on OECD and global inventories falling also, http://www.eia.doe.gov/steo/#Global_Crude_Oil_And_Liquid_Fuels .
Jim Hamilton at Econbrowser argues that Saudi Arabia may be running into production limits, noting particularly that it has never gotten back to 2005 levels of production, despite much higher prices more recently, http://www.econbrowser.com/archives/2011/04/saudi_oil_produ_4.html . On Crossroads Arabia, John Burgess reports at least two more theories of what is going on, beyond the production problems story and the obviously false claim that there is "too much" oil on the market, http://xrdarabia.org/2011/04/19/saudis-too-much-oil-on-the-market .
One of these involves internal Saudi politics, that the royal family has promised large amounts of spending in the near term to avoid a serious internal upheaval, and higher oil prices now help achieve that. I note that if this is what is going on it is the first time ever that the Saudis have not viewed the danger of declining long term demand due to much higher prices as more important than short term monetary gains, although maybe they are spooked by all the uprisings, and also if they are beginning to run low they may be taking a shorter time horizon, not to mention that younger and less patient members of the royal family may becoming more influential.
The final one, which Burgess views as paranoid, is that the royal family wants to at least display unhappiness with Obama's responses to the Arab Spring uprising, if not actually wanting to bring him down, although it is clear that if oil prices soar high enough to bring a return to global recession, that is the most likely way to bring about a failure of Obama to be reelected in 2012. In any case, the royal family has been openly displeased at the US supporting the rebels in Egypt (eventually), and are even more upset at mild US criticism of Saudi intervention in Bahrain, which the Saudis view as a possible inspiration for their own Shi'a to rise up. While the Shi'a are only around 12% of the Saudi Arabian population, they are located in the oil-producing Eastern Province and have long held senior positions in ARAMCO, dating back to when it was owned by US oil majors that hired them when they were being discriminated against by the majority Sunnis of Saudi Arabia.
In any case, this is the first time ever that I have seen any officials from Saudi Arabia making statements about world oil markets that are clearly not in line with the widely reported facts. Something is up, and I suspect it is some combination of all of the above.
2 comments:
It just looks that way, when the Saudis get to punch beyond their weight for a few years. It looked the same back in the 1970s. When the dollar gets weaker, commodities prices go up first. For a few years, the farmers, miners and drillers look like geniuses.
It appears that there is some disagreement within the Saudi leadership over what is going on and what to do about it. Burgess at Crossroads Arabia today reports on a story in Arab News in which the head of Saudi ARAMCO and the Minister of Petroleum and Minerals both are quoted as worrying about oil prices being too high. However, they do not disavow the move to cut Saudi production, nor do they disavow the claim that the markets are "oversupplied," and blame it all on "speculators."
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