Tuesday, March 8, 2011

Saudi Oil Minister: Crude Not Supported By Supply-Demand But Financial Speculation

Saudi Oil Fields (source: EIA)
The press release below, released by the Saudi Embassy in Washington DC, was tweeted out by @SaudiEmbassyUSA today. It's pretty clear that speculators are dominating the oil market on concerns that political unrest could spread to Saudi Arabia.

For example: "Oil Options ‘Bullish’ as Volatility Rises, Futures Above $105" (Bloomberg) and "Saudi Arabia's `Day of Rage' Lures Record Bets on $200 Oil: Chart of Day" (Bloomberg). And there's violence in Yemen today: "#Yemen security forces fire on protesters, injuring at least 65 people -- Al-Jazeera" (h/t pdacosta).

However, OPEC could intervene to lower prices: "Kuwait's oil minister said OPEC was considering a production boost as war-torn Libya's output remained disrupted and the region's unrest fueled concerns about more supplies being cut off." (Reuters). I read that the U.S. might tap the Strategic Petroleum Reserve, but Total's CEO said that could "drive energy prices higher" (CNNMoney).

David Tepper (Appaloosa Management) and Larry Fink (BlackRock) have already acknowledged oil risk. And now Nouriel Roubini: "Roubini Sees Double-Dip Recession for Advanced Economies If Oil Hits $140" (Bloomberg). April crude oil is down 0.64% at $104.76.

"March 8, 2011

[Washington, DC] – His Excellency Minister Ali Al-Naimi, the Minister of Petroleum and Mineral Resources for the Kingdom of Saudi Arabia discussed recent concerns surrounding crude oil prices and reserves in an interview with the Saudi Press Agency. During the interview, he outlined the ways the Kingdom is working to ensure stability in the oil market and discussed the recent surge in prices.

Minister Al-Naimi stated that Saudi Arabia has 3.5 million barrels-per-day of spare crude oil production capacity readily available if necessary. In addition, he highlighted that the Kingdom can use various storage locations across the world to provide increased flexibility to meet additional requirements from the global market.

Regarding pricing, Minister Al-Naimi said recent crude oil prices are not supported by basic supply-demand balances and have more to do with financial speculation and unwarranted negative supply sentiment than industry fundamentals. In addition, he emphasized that at the present the market remains well-supplied.

Minister Al-Naimi concluded by listing the steps the Kingdom has taken to ensure continued stability in the petroleum market:

  • Supplied all of its customers' normal crude oil requirements.
  • Met all incremental demand from its customers.
  • Taken steps to develop a special crude oil blend which is closer in quality to the supplies which have been lost by utilizing mixes from its different fields which are lighter in API gravity and lower in sulfur content, helping to minimize crude quality concerns.
  • Stored additional quantities of crude oil at various storage facilities and increasing inventories in Sidi Kerir (Egypt), Rotterdam (the Netherlands) and Okinawa (Japan) to better meet any additional call on its production."

    Source: http://saudiembassy.net/press-releases/press03081101.aspx

Side note at eia.doe.gov: "Saudi Arabia has one-fifth of the world s proven oil reserves, and maintains the world s largest oil production capacity." But are reserves overstated? "US diplomat convinced by Saudi expert that reserves of world's biggest oil exporter have been overstated by nearly 40%" (WikiLeaks/Guardian). More... Goldman Says Saudi Arabia Is Misleading the World About Oil Production. Good luck world.

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