Saudis Promise More Oil, Price Rises Anyway

The week-end meeting of OPEC countries and their customers amounted to a nice photo op and little more. Saudi Arabia promised to pump an extra 200,000 barrels of crude a day, a 2.1% increase. Worldwide production is 85 million barrels a day. This Saudi increase is a drop in the bucket. Clearly everyone wanted to be seen to be doing something about oil prices, but when the nations involved showed just how little they could do, the market took the price of oil back up. Short-term political gimmicks like this meeting aren’t going to alter the facts.

In a nutshell, the situation is as CNN described it, “The US and other nations argue that oil production has not kept up with increasing demand, especially from China, India and the Middle East. But Saudi Arabia and other OPEC countries say there is no shortage of oil and instead blame financial speculation and the falling US dollar.” The truth is all of these factors are driving the price of oil higher.

Oil industry expert Stephen Schork, in his Schork Report wrote, “Bubble or not, one thing is for sure, while the market has not gained any ground since that historic $16.10 rally back on June 05th/06th, it has not yielded any ground either. It is clear that the market is certainly comfortable with crude oil up around these levels.”

The meeting also highlighted a divide in OPEC, with the Saudis taking a more sympathetic view of their customers’ pain than others. “The meeting was a bit disappointing,” an unnamed European diplomat told Reuters. “The only producer that came up with any concrete proposals was Saudi Arabia -- all the other producers just made bland statements about future capacity plans.” For example, Abdullah al-Attiyah, Qatar’s oil minister, denied there was a problem, “There is enough oil in the market. Prices are being driven by speculation.”

The ugly reality in the energy market is finite supply and potentially infinite demand. As economic growth increases, so does the consumption of energy. Because the world has largely relied on oil for its energy needs for the last 100 years (with coal a close second), there is very little diversification in supply. Nuclear, wind, tidal, solar, etc. have been ignored because oil was easier. What could have been done 30 years ago at a painful put acceptable cost, will now have to happen much more painfully – and it may not prove acceptable to some. That means increasing violence, and nothing is more pointless than that.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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