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Page added on March 30, 2012
Saudi Arabia: Paper Tiger?
Ali Naimi is not fond of extremes. The Saudi Arabian petroleum minister is so worried by high oil prices — Brent crude commands about $123 a barrel — he felt compelled to pen an Op-Ed in today’s Financial Times. The last time he took to the newspapers, according to a search of Factiva, was back in February 2009, following oil’s crash from triple digits to less than $40 amid the financial crisis.
Mr. Naimi’s message Thursday was simple: very high oil prices are bad for the global economy, which is ultimately bad for oil demand, and Saudi Arabia will act to bring them down. He singles out Europe in particular as an example of a weak economy being undermined further by high energy costs, a point echoed in the OECD’s latest assessment of economic prospects, also released Thursday.
Oil accounts for 45% of Saudi Arabia’s economy and the vast majority of its (swelling) public budget. Its rulers know that geopolitical risks centered on Iran are keeping prices high. That is encouraging consuming countries to look for alternative energy sources, reduce energy consumption, and even consider releasing barrels from strategic reserves.
For the Kingdom, getting a little less for each barrel today would be worth it if this helps preserve the value of the 265 billion barrels of proven reserves Saudi Arabia still has beneath the ground.
The question is whether Mr. Naimi’s article will be taken by the market as a warning or a cry for help. On one hand, when the minister controlling most of the world’s spare oil producing capacity says he wants lower prices, those betting on further price increases should be worried. If Saudi Arabia boosts production, fears of oil shortages could dissipate quickly, causing prices to slide.
But while Brent is down about 1% today, Mr. Naimi’s words have hardly caused a panic. One reason could be the fact that he took such an unusual step in the first place. After all, if Saudi Arabia really can increase production so quickly to deal with any disruption that might arise, why does it feel the need to shout about it? Why not just do it? The very act of advertising one’s claimed strengths can be the surest way to raise questions about their credibility.
6 Comments on "Saudi Arabia: Paper Tiger?"
Kenz300 on Sat, 31st Mar 2012 12:17 am
As long as oil is a monopoly on transportation fuels we will have this problem. Bring on the competition and choice at the pump. Electric, flex-fuel, hybrid, CNG, LNG and hydrogen fueled vehicles all need to be part of the mix.
pete on Sat, 31st Mar 2012 4:22 am
hear hear Kenz and remember that 265 billion barrel is after the 50% rise without drilling a well in the 80’s. just like our father whos art in heaven, Matthew Simmons RIP. said in Twilight in the desert.
BillT on Sat, 31st Mar 2012 4:22 am
“… Why not just do it? …”
Indeed. They cannot do it and they are worried that the world will soon see through their lies. That would put the brakes on any war with Iraq as oil would go through the roof.
Max Reid on Sat, 31st Mar 2012 10:39 pm
Well said Kenz300
As per this site, there are nearly 7,200 EV charging stations nationwide and 2 years ago, it was less than 1,000.
http://www.afdc.energy.gov/afdc/fuels/stations_counts.html
Back in Year 2000, Saudis said that $25/barrel was a fair price, then they bumped it upto 45, then 75 and now 100. Soon OPEC will start selling only refined products like Gasoline, Kerosene and Diesel instead of Crude Oil and will make better margins and bigger control over us.
BillT on Sun, 1st Apr 2012 2:27 am
Dream on Max & Kenz. Electric is NOT going to be a major vehicle fuel ever. A few in the upper middle and wealthy classes will have them as toys and for bragging but they cost too much and will take too long to get into use to be of any significance. Eventually, they will be targets for car thieves as they will be the only ones on the road worth stealing.
BillT on Sun, 1st Apr 2012 2:34 am
BTW:
“… According to the economic census for retail trade (census.gov) in 2008 there are about 115,223 gas stations. …”
So, Max, there are about 7,200 electric stations in the US. So, we only need 16 times that many to make it work? Considering that it took many decades to build this system, how long do you think it will take, realistically, to build this new one? How many trillions of dollars? Really? Now do you see why electric cars will never be the answer?