Original Post
The AP has chimed in with their reason why oil is now trading at $111: because Libyan oil fields have been damaged.
Early on, pundits said that Saudi Arabia could easily make up any shortfall from Libya due to the civil war. I did not agree with that; I did not think Saudi would/could make up the shortfall. I won't go through all the reasons again.
But, if pundits in general agree that Saudi could make up for the Libyan shortfall, why is the news that Libyan oil fields have been damaged be the reason for oil moving to $111? It was not a stretch to predict that the fields would be damaged in any conflict.
I think AP has taken two facts ($111 oil, and damaged oil fields) and simply drawn cause and effect.
I still think analysts are missing this point: the Saudis like what they see.
Reminder: the numbers were all over the board due to the writer's agenda, but it was said that Libya exported anywhere from 400,000 to 2 million bbls/day. Whatever it was, almost all of it went to Europe. The US imported about 60,000 bbls of oil/day from Libya. North Dakota is producing about 345,000 bbls/day.
Higher oil prices are just fine for the OPEC crowd.
ReplyDeleteWhy would you take less?
I think that's the real reason.
ReplyDeleteEvery time there is a rise (or a spike) in the price of oil, Saudi watches to see how that will affect the market. As long as the global economy can handle it from the Saudi's point of view, that's where the price will head.
Saudi can definitely raise the global price of oil by cutting back production.
The new question is whether Saudi can bring prices down (if oil prices start hurting the global economy). Everyone agrees that their spare capacity is decreasing; but no one knows if that is yet significant.
On the other hand, perhaps demand destruction (or a recession) will replace Saudi as the mechanism to bring down oil prices when they get "too high."
But I agree with you: the Saudis like what they see.