Can Saudi Arabia Push Down the Price of Oil? 25 comments
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This weekend, Saudi Arabia will be hosting an Oil Summit in the city of Jeddah, located on the coast of the Red Sea. They have invited executives from oil companies, leaders of nations and the world’s largest oil producers.
The big question for markets is whether or not Saudi Arabia can drive down the price of oil.
So far, I’m a big skeptic. Earlier this month they announced a 200k barrel increase in oil production, but instead of sending oil prices lower, it sent them higher. The same can be said for the pressure that the US has been exerting on oil producers; oil prices only continued to trend higher. The only announcement that actually managed to drive crude lower was yesterday’s price hike from China and even that sell-off failed to last.
There are 3 things driving oil prices higher:
1. Speculation
2. Weak Dollar
3. Supply and Demand Constraints
There will be a lot of finger pointing this weekend. Saudi Arabia is the only OPEC nation with spare capacity. With Venezuela not attending and Iran at odds with Saudi Arabia on whether an oil output hike would matter to prices, OPEC as a group is not expected to hike production. Most OPEC nations blame the oil price rise on speculation.
This Summit is Saudi Arabia’s opportunity to prove to the world that they can increase capacity but what we want to know is how high these oil producing nations think oil prices can rise.
In order for oil prices to start coming down, big changes need to be made and made quickly. Drilling offshore is not the solution because it would be years before we see any results.
How to Bring Relief to US Consumers
If they really want to help consumers, the US needs to propose a similar solution as Italy. The Italians plan on raising taxes on oil companies and giving away that revenue as pre-paid discount cards worth about $620 US dollars to approximately 1.2 millions Italians. Of course, this would only work if the oil companies do not follow suit and raise prices.
If oil prices do not fall after the Jeddah Summit, not only will it keep the dollar firm, but it will also force central banks around the world to remain hawkish.
USA Today has a great guide to some of the issues at play during the oil summit. Here it is:
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A tax on the oil companies will do absolutely nothing. If you want to do something, tax gas usage. How about that for an idea? Curb demand and you'll lower price. Econ 101. Take the tax and rebate it back in some fashion. Give people free transit passes or bicycles or discounts on fuel efficient vehicles from GM or Ford if you must (to get those people back to work). It doesn't really matter. Tax what isn't desired and reward what is.
Pointless article.
> jack
Speculation is most definitely a part of the price rise. Witness the price of housing or any bubble that was driven by speculation. Oil has more parts and is a declining resource but saying speculators out for quick money are not there is ludicrous. Require a 50% margin on futures and watch the price fall. Of course the trend is up because little was done to demand efficiency. Cheap oil has led to waste and a public mindset of use it now and let the future take care of itself. Drilling along the coast is needed and the excuse that it would not help in the short run is like saying we should give amnesty to illegal aliens because we can't deport all of them (so deport half of them). In 10 year we will need that oil for the long transition and drilling must start soon.
Finally, we need to greatly slow immigration and stop illegal immigration. Finally, Bush is doing one thing right but Obama and McCain are just panderers to Latino special interest groups. Population growth is the main reason resources are running short, do we really need more people here? The future is now here.
And there's a reason for that. Methane and oil aren't "fossil" fuels at all, but occur naturally in the earth's mantle, just as methane does on Mars or in comets, throughout our solar system. And that's precisely why we can never run out of OIL or METHANE.
That's not to say that oil won't be more expensive to produce in coming years, or that using renewable fuels and new technologies in the transportation sector of our economy isn't a good idea. But the myth that oil is somehow "running out" only serves to drive up ALL energy prices unnecessarily.
Who benefits from the idea that the world is running out of oil..? Why, it's the nationalized oil producing countries, and the big oil companies, of course!
The best thing the government can do about oil is nothing. Private industry needs to, and will if market incentives are left in place, take a multi-pronged approach: increase oil supply through exploration, bring more alternatives to market especially for electricity generation, and reduce consumption by increasing efficiency and replacing profligate lifestyles with simpler ones. All of this is happening. The price of oil may fall or it may not, but in the future it is sure to be lower if the market is allowed to work than if the government attempts to pick winners in alternatives, subsidise consumption, tax "windfall" profits from production, or implement any of the other harebrained schemes they've thought up.
But back to Saudi Arabia: the " extra" oil they are offering is so sour that no refinery will touch it. It is p.r. for total idiots to believe in. A joke.
They might be Muslim but they aren't that retarded.
Oil is infinite and renewable. Peak oil is garbage.
1) The US is still the world's 3rd largest producer of oil (8.7 bbl/day), not that far behind Saudi Arabia and Russia. If I recall right, #4 Iran produces less than half as much. The problem is we consume well over twice what we produce.
2) The table shows US production at 8.7 and consumption from domestic production at 5.1. So what happens to the other 3.6 million barrels per day we produce? I have heard that some part of our current Alaskan production goes to Japan or the international market in general.
Kathy Lien's articles always sound interesting but amount to not much at all. I used to read DailyFX regularly before deciding it was a waste of time.
Brian Pursley, you are a jerk.
I think Saudi Arabia will increase their oil production very soon. Government in Saudi Arabia also wants solutions to the inflation now. They also fear about collapse of other industrial sectors. They think higher oil prices are not sustainable and it will hit hard their economy as well. In addition I think they have realized their future depend on strong world economy. They know that their investments also going to lose due to present credit crisis in the world.
With slower world growth oil consumption will come down. It is happening all over the world now. People are more careful now some use bicycles and scooters instead of cars now.
Now George Soros see bubble in the oil market
I heard Goldman analysts Arjun Murti has reiterated his view that oil prices could fall to $75/barell once demand come down.
Given above facts we can see strong correction in the oil market soon. I think this is the longest commodity bull market we ever had. Bull markets will not last for ever.
There is an argument that oil is too cheap at current prices, just work out how much a pint of oil costs...
Maybe for both reasons simultaneously. The kingdom’s ruling elites may have judged, on one hand, that they could no longer act as a “swing producer” in the context of a demand growing too fast ; and, on the other hand, that getting bigger profits from high selling prices would allow them to solve serious domestic problems …
Now, with demand greatly bridled by those high selling prices, they may estimate that they can – and must – resume their previous role in order to stabilize the prices (or at list moderate further increases) and in doing so avoid a premature collapse of the world economic system they depend on and in which they detain profitable capital.
"My grandfather rode a camel. My father rode in a car. I fly a jet airplane. My grandson will ride a camel", use to say the Saudis. With God’s help, reverting to riding a camel may be delayed by one or two generations … on condition to make decisions able to lead God’s will in the right direction.
André Sautou