Saudi Arabia may curb oil production

Discussion in 'Wall St. News' started by MrDODGE, Jun 5, 2008.

  1. By Nadim Kawach on Wednesday, June 04, 2008

    Saudi Arabia's Shura council (parliament) will hold a series of meetings over the next two weeks to discuss a controversial proposal by a key member to curb oil production to save reserves for better prices, Saudi media reported. The council will listen to a report by deputy chairman of the Shura water and public utilities committee, Salim bin Rashid Al Marri, who will argue for cutting crude supplies to maintain the Kingdom's underground reserves.

    "Marri will seek to persuade council members that the oil production must be linked to the country's actual development needs not the needs of foreign consumers," Alriyadh newspaper said in a report from the capital Riyadh. "He will tell the Council that keeping sufficient oil quantities underground is a good investment for the future as oil prices will then be higher…he will argue that this will be better than producing more oil and generating financial surpluses on the grounds these surpluses are causing inflation."

    Saudi Arabia is the world's top oil exporter and its crude policy is normally determined by the King as the oil minister's job is mainly to implement that policy.

    According to analysts, any major increase or decrease in the Gulf Kingdom's crude production must be approved by the Monarch, who was reported last week to have heeded a call by US president George Bush and agreed to lift output by nearly 300,000 barrels per day to cool down boiling crude prices. Saudi Arabia, which controls nearly a quarter of the world's total extractable oil deposits, has pumped an average of nine million bpd over the past year but its sustainable output capacity is almost two million bpd higher.

    To face an expected increase in global demand, Riyadh is investing heavily in projects to boost its oil production capacity to 12.5 million bpd at the end of 2009 and maintain its traditional spare capacity of more than two million bpd.

    "The price of oil under ground is actually higher than its current market price because it will become a unique commodity by time and demand will continue to rise because of a steady growth in the world's population," Marri told Alriyadh.

    "The level of oil production in Saudi Arabia must be linked to the country's actual development and financial needs not to market prices and the need of foreign consumer. It is not wise to sap this resource just to satisfy the demand of foreign markets. Therefore, we need to revise our oil production policy before it is too late. Preserving our oil reserves is better than investing our financial surpluses which could lead to inflation."

    According to the newspaper, Marri scoffed at what he called fears that the price of oil will decline after the development of more energy sources. "These fears are unjustified because they come from the consumers who are only benefiting from higher production and from the country's enemies who do not like to see prosperity and progress in Saudi Arabia," he said."Even if other major sources of energy are developed, they will remain costly and oil will remain a strong rival in the energy field. "
  2. This is one paragraph after another of pretty stupid statements ... Clearly someone didn't go to economics class.

    Maybe we should just get have this 'demand destruction' game play itself out sooner than later. Rather than drawing it out and bankrolling their government budgets for the next 20 years, how about they stop producing altogether? That we can go go all electric/nuke within 3 years (out of no choice) and never demand crude over $15/barrel (production cost?).

    That... I'd get a kick out of.
  3. Nuclear is the answer
  4. And hydro electric
  5. and solar
  6. During the second oil shock of the 1970's the rap was that oil would be $100 / bbl in under 2 years. That prediction failed because no one correctly estimated the consumers ability to alter behavior. Consumers cut back. The economy slowed down for a time. The US auto industry permanently lost market share to imports.

    The developed world is experiencing a graying in population. At the same time scientific evidence and political correctness are driving economys toward a greening of energy supplies. Green supplies have a built in conservation impact due to their higher costs. This looks good from a distance because the disruptive impacts are normally not part of the discussions.

    A couple years back the US EIA suggested (in their annual forcast) that over time Middle East oil will more likely flow to Asia than North America. They suggested that the North American demand would be more likely supplied by Atlantic basin producers.

    The timing of Treasury Secretary Paulsons middle east visit in support of soverign wealth fund access to US markets / assets seems to dovetail nicely with Bernanke's attempts to support the US$ by addressing inflationary concerns.

    If internal forces succeed in curbing Saudi production, the next logical follow on action for the Saudi's would be abandon the practice of pricing oil in US$.

    It seems we're destined to live out the old Chinese curse ("May you live in interesting times").
  7. They are running out of oil, but want to hide this for as long as possible.

    They can't have the rest of the world embracing alt energy to quickly so they keep the the price from raising to fast and blame speculators! Got to milk it as long as possible :)
  8. Great article, very informative! I totally agree with that member of the Saudi Parliament, however, it will come to nothing I'd guess. The Saudi royal family knows to tow the US line or else.
  9. Sam321


    This only means the Saudi's no longer need to answer to U.S. desires. There are other big oil customers out there today. So OPEC will make oil scarce until the U.S. can make policy that influences the supply side (Iraq, domestic drilling, non-opec producers, etc.) which will force OPEC to produce, and the price of oil will fall.
    #10     Jun 6, 2008