Lead story on CNBC at the top of the hour: 7:00 a.m. CST.
"Is Saudi all talk or can they really replace the oil loss due to events in Libya?"
The $147 question.
So far Saudi is only talking about increasing supplies.
Questions:
1. Does Saudi have the reserves? Short term Saudi has been decreasing production due to slowdown in global economy, so they have ability to quickly bring production back up to historical highs. However, long term, there are discussions on whether Saudi's reserves are as robust as they say they are.
2. Does Saudi have the right kind of oil? Libya's oil is sweet oil, like the Bakken oil. Refiners in Italy taking Libya's oil were "geared" for sweet oil. It is not as simple as flipping a switch to take Saudi oil, which is sour. Saudi is apparently talking about options: a) diverting sour crude to Asia and allowing other sources to divert sweet oil from Asia to Europe; b) see if European refiners can handle more Saudi sour. Some can argue that by the time they sort this out, the Libyan crisis will have reached some sort of equilibrium (as price of gasoline goes up, demand goes down).
3. Does Saudi want to increase oil production? Long term Saudi has talked about need to "save" their resources for future generations. Short term, they enjoy the high price of oil, but realize that high prices can affect the global economy. Saudi is as invested in the world economy as the US, China, and Europe. Most interesting is this: it is no secret that Saudi is unhappy how Washington (as in DC) treated Mubarek (as in "throwing him under the bus" after 30 years of friendship). Some are suggesting that the Saudis are not eager to help the US. At the end of the day, these folks are capitalists and they will do what's best for themselves and their country.
4. Has Saudi seen this movie before? Yes, Saudi has seen the prequel and many sequels, and they know there will be more sequels.They will think about this carefully before rushing into anything.
For another perspective, click here.
The Saudis will do what they conclude to be in their own best interests.
ReplyDeleteHigh oil prices are nice if you are a seller but if you get what you want and the economies of your buyers crash then what do you have? Saudis understand this.
Looks to me like some of the fear has exited the market. Not to say it can't return very fast and maybe when it's least expected but some of the countries we import from have always been politically unstable either because of war or religion sorry.
"The Saudis will do what they conclude to be in their own best interests." You are so correct.
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