OPEC Stand Off As Saudi Arabia Tries To Help Obama's Reelection Chances By Hiking Crude Output; Iran, Venezuela, Iraq Not Convinced
Contrary to ongoing wideranging skepticism, Saudi Arabia continues to posture that not only does it have substantial excess capacity, but that it will bring it online any... minute...now. After all, Saudi owes the US a big favor (i.e., lower gas prices) in exchange for America's (or rather its Fifth Fleet) continued presence in Bahrain, which even those living in a cave know has been under a full media blackout to keep the ongoing religious tensions under wraps and keep the Saudi-Bahrain border safe (not to mention the Ghawar oil field). So even as Saudi had promised to hike its output as Libyian production went offline only for it to be discovered that the country had in fact lowered production, so now too the song and dance has hit fever pitch. Reuters reports that "Saudi Arabia is planning to lift oil output sharply in June, whatever policy OPEC adopts this week, in an effort to rein in high fuel prices. Riyadh expects to lift production by more than 500,000 barrels a day in June to its highest for three years, a senior Gulf industry official familiar with Saudi oil policy told Reuters." We can't wait to hear how Saudi's unilateral plan to boost Obama's reelection chances is met by other OPEC members such as Iran, Venezuela, Iraq and Libya. "Worried about the impact on economic growth of
inflated energy costs, Saudi will act alone if necessary to keep a lid
on prices now at $114 a barrel for benchmark Brent crude." Wait, isn't OPEC a "cartel", or a place where unilateral decisions are not allowed, for precisely this reason? Of course, at the end of the day, with recent Wikileaks disclosure that Saudi Arabia admitted it has overstated its reserves by some 300 billion barrels, or 40% of total, this latest ploy to push gasoline prices lower into the summer season will have a half life that is shorter than the SNB's FX intervention attempts.
The biggest producer in the Organization of the Petroleum Exporting Countries, Saudi wants the cartel to lift formal output limits at a meeting on Wednesday to show consumer countries that it sees the danger to the economy of runaway oil prices.
So far it only has the support of its Gulf Arab allies Kuwait and the United Arab Emirates among the 12-member cartel.
"I expect OPEC to increase output during this meeting but I am still unsure how much," Kuwaiti Oil Minister Mohammad al-Busairi told Reuters.
"The market will be tight," said UAE Oil Minister Dhaen al-Hamli.
Riyadh's production intentions may overshadow an OPEC meeting which Gulf Arab producers want to restore credibility to the producer group's out-of-date supply limits.
The Gulf producers want, at least, to close the 1.4 million bpd gap between OPEC's two-and-a-half year old official production limit of 24.8 million bpd and actual output, estimated by OPEC in April at 26.2 million.
"There is a need for more supply in the market," said Kuwait's al-Busairi. "I expect demand to be strong in the third and fourth quarter, the demand will mainly come from Asia."
There is strong opposition to any production increase from price hawks Iran and Venezuela, with most neutral countries yet to show their hand.
One of them, Iraq, said it was happy with the market as it stands.
"In my opinion the current level is not too high," said Iraqi Oil Minister Abdul-Kareem Luaibi of $114 Brent. "Recent indications from the oil market as far as the stocks and supplies is good -- there is good supply."