Can Saudi Arabia Really Lower US Gas Prices Ahead Of The Election?

Tyler Durden's picture




 

One of the more curious conspiracy theories that has appeared in the past 24 hours, or since yesterday's so far unexplained crude oil flash crash without a subsequent corresponding jump (those only happen in equities it appears), is that Saudi Arabia has decided to come to the aid of the Obama administration two months ahead of the election, and to pump enough crude into the system to offset the pricing in of the inevitable liquidity tsunami from the now global QEternity, or at least until such time as the election passes. Partially confirming this speculation was the FT's report that Saudi Arabia has offered its main customers in the US, Europe and Asia extra oil supplies through the end of the year, a sign the world’s largest exporter is worried about the impact of rising prices on the global economy. Reuters adds, citing a Gulf source that "We would like to see the price coming down and we are working to bring it down... The price now, we believe is high, and it's not supported by fundamentals at all. It's just speculation and geopolitics." "The majority of OPEC countries prefer around $100, including Saudi Arabia," he said, adding that $100 per barrel was "right now the ideal price for the majority of OPEC countries ... the majority is all except one or two." "We think the oil market is well balanced," the Gulf source added. This comes a day after fellow OPEC member Iran, whose output has been substantially curtailed in recent months as a result of a global embargo (with notable exemptions for key Iran clients India and China) made it clear that it would be happy with crude rising to $150 for obvious reasons. Obviously Iran is in the "minority" according to the Gulf source. And while the reasoning for Saudi Arabia to do all in its power to promote amicable relations with America's leadership is easily explainable, it is far less clear if Saudi Arabia can actually do much if anything to really prop up crude production, prop down the price of crude and gas at the pump, and support Obama's reelection chances.

As the chart below shows, it appears that 10,000 tb/d is ceiling that Saudi Arabia can squeeze out: if that was not the case, Saudi Arabia would have moved to pump far more than its peak output of 9,800 tb/d in February-April when the price of Brent was well above current prices, and was trading in the $120-$125.

Furthermore, this is not the first time Saudi Arabia has made hollow promises in 20120 : earlier this year Saudi stated loud and clear it would step up its crude production aggressively then as well, primarily to offset the lost Iran output to Western partners. It did not: crude production never surpassed 10,000 tbd no matter the demand, supply or market liquidity picture.

Which is why we are once again convinced that any rhetoric out of Saudi Arabia is merely empty posturing set on facilitating the last two months in the election campaign, at a time when the average price of regular gas across the country is already just why of $4.00 according to the AAA, and as Zero Hedge reported last week, has never been higher on this day in history.

So much for the facts: as to what the media is distributing for public consumption, here it is via the FT:

“The current price is too high,” a senior Gulf-based oil official told the Financial Times. “We would like to see oil prices back to $100 a barrel.”

 

The price of Brent, the global oil benchmark, has risen 33 per cent from mid-June to a peak of $117.95 a barrel on Friday. On Monday it plunged almost $4 in just four minutes, but later recovered.

 

Saudi Arabia last launched a similar round of consultations with major oil refiners in March, weeks before it boosted its production to a 30-year high of 10m barrels a day. Riyadh is now evaluating the response from refiners.

 

The nation last month produced 9.9m b/d, but the senior official said that Riyadh was now again pumping around 10m b/d. “We are consulting our clients about their oil needs and telling them we are ready to supply more,” the senior official said.

 

Opec delegates said Riyadh was trying to bring prices down. “The Saudis are actively managing the market,” added another senior oil official from an African Opec nation. “They supplied a little less when prices dropped to $90 over the summer and they will supply more now that prices are above $115.”

No they won't. They can't. But just like all the central banks they can jawbone long enough until the market calls their bluff. As to why the outcome of the US election is now determined by the Federal Reserve (aka the S&P500) and potentially Saudi Arabia...

The signal from Riyadh comes as rising energy prices emerge as a contentious political issue in the US presidential race. Mitt Romney, the Republican candidate, has accused President Barack Obama of not doing enough to bring gasoline prices down.

 

The cost of regular gasoline surged in the US last week to $3.878 per gallon, the highest level ever for this period of the year. US retail gasoline prices reached an all-time high of $4.114 per gallon in early July 2008.

 

The White House last month dusted off plans to use the strategic petroleum reserve to bring prices down. But so far Mr Obama has not authorised a release, in part because opposition from allies such as Germany and, to a lesser extent, Italy, Japan and South Korea.

So what happens when the market does call Saudi's bluff in a few weeks, and no flash crash, nor even CME margin hike can do anything to keep WTI under $100, and Brent south of $120? Well, that's when the SPR Release comes into play - a move which will sent crude and gas prices lower for about a week or two, only to surge subsequently.

Which logically means an SPR release will only be attempted by the administration with about a fortnight left before the election.

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Tue, 09/18/2012 - 16:31 | 2808394 Gringo Viejo
Gringo Viejo's picture

Maybe...but they need another few "bows" and some major sucking up.

Tue, 09/18/2012 - 16:54 | 2808472 Michael
Michael's picture

I am rolling on the floor laughing my ass off at all the Green on UN  Blue killing going on in Afghanistan these days.

The Afghanis let their stupid would be conquerers arm them to the teeth and are now turning their weapons on the ones who gave them all those shinny new weapons.

The Afghans perfected the art of war. It's a completely decentralized form of national defense. A strategy like the Ron Paul Crew uses.

No one has ever conquered Afghanistan for a considerable period of time throughout their entire history. That's why they say Afghanistan is the country other countries go to die.

In the USA, their training sub 100IQ DHS snipers to kill Americans in our own country and have bought so far 1.6 billion hollow point bullets to do it with.

Again I'm rolling on the floor laughing my ass off hoping they continue doing so.

Their just arming the American people with all that Guns and Ammo to be turned on and used against TPTB when the time comes.

You can take the boy out of the jungle, but you can never take the jungle out of the boy.

http://i.imgur.com/sj4X7.jpg

 

We are here to protect you.

http://www.youtube.com/watch?v=MV-Lou4v9-I

 

I am voting for President Barack H Obama and voting against every currently sitting congress critter incumbent up for reelection on the ballot in November.

Tue, 09/18/2012 - 17:04 | 2808500 iDealMeat
iDealMeat's picture

I wish the Ron Paul camp would pick Jesse Ventura for a VP and make an indy run for it while there is still time..

 

be good theater.

Tue, 09/18/2012 - 17:28 | 2808565 Spastica Rex
Spastica Rex's picture

They could tap Dennis Kucinich for a key cabinet post. I think he's out of a job.

HA HA HA HA HA

Tue, 09/18/2012 - 19:31 | 2808909 Harbanger
Harbanger's picture

The Kucinich loss was a good thing for Ohio.  Watching the MSNBC hosts surprised and wimpering was a good thing for me.

Tue, 09/18/2012 - 20:35 | 2809130 malikai
malikai's picture

That sux, Kucinich may be foolish, but he's more genuine than the whole rest of that shit party combined.

Same loss of RP for the repugnicans.

Tue, 09/18/2012 - 20:58 | 2809145 TuesdayBen
TuesdayBen's picture

And the primary reason the Saudis would try to help Obama is:
A. His middle name has a nice ring to it
B. They saw that old photo of him in a turban
C. They think his bowing is the funniest goddamn thing ever, and wanna see more of it
D. They think Joe Biden is the second funniest goddamn thing ever, and they want for more years worth of Biden Blooper vids on YouTube
E. The primary characteristics they seek in a POTUS are unpreparedness, fecklessness, indecisiveness, megalomania, and weakness.
F. All of the above.
G. Other (specify)

Tue, 09/18/2012 - 22:03 | 2809474 luckylogger
luckylogger's picture

in a more serious note... imho Romney wants to drill and the US could obviously drill and increase production 3-4 mmbls easily + Canada and you have the 6 million barrels needed of excess global supply to bring the price down to 50 buks a barrel.......... OPEC does not want that...... they like this wishy washy half green president that keeps us from drilling to our potential.....

Tue, 09/18/2012 - 17:07 | 2808511 Michael
Michael's picture

"And if you think the mortgage cops won't find you, think again.  The OIG's investigative office has a 45-person staff, "all experienced people with 15 to 20 years as investigators and prosecutors," according to Peter Emerzian, deputy inspector general in the Office of Investigations.  They work out of 11 field offices, soon to be 14, nationwide, and they're looking for you."

 

The names of those investigators are public knowledge and the Names and Addresses will be published on the internet and easily Google Earth searched.

Tue, 09/18/2012 - 17:22 | 2808555 Deathrips
Deathrips's picture

Solution for the 45..send them to the source. Banks that irresponsibly let freeing up "liquidity" for banks....they wont be comming back.

BS..they dont even have the original contracts...see contract law and MERS.

Tue, 09/18/2012 - 17:28 | 2808567 fuu
fuu's picture

With only 3-4 per office them's easy pickins.

Tue, 09/18/2012 - 17:40 | 2808590 MachoMan
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It is complete bullshit to prosecute people for lying on mortgage applications?  Piss off...

Wed, 09/19/2012 - 01:52 | 2809956 gonetogalt
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The Clinton Administration, through our US attorney at the time, Yes, Janet Napolitano, sent our governor to prison for essentially the same thing, got him out of office, they did.  This was primarily because Arizona was challenging Fed jurisdiction over BLM, National Parks and National Forests. Worst political fucking of the good guys I ever saw close up.

Tue, 09/18/2012 - 17:51 | 2808631 Meesohaawnee
Meesohaawnee's picture

welcome to the USSA.

Tue, 09/18/2012 - 21:02 | 2809247 Freddie
Freddie's picture

Muslims trying to save their muslim.  They paid good money for the white hut.

Tue, 09/18/2012 - 16:32 | 2808398 AldoHux_IV
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It's the least the corrupt house of Saud can do for the politicians it bought to take out Iran for them.

Tue, 09/18/2012 - 17:10 | 2808522 CrashisOptimistic
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“The current price is too high,” a senior Gulf-based oil official told the Financial Times. “We would like to see oil prices back to $100 a barrel.”

 

Typical Saudi bullshit.  If they want a lower price, THEN MAKE THAT THE PRICE OF WHAT THEY SELL.

They don't need NYMEX to say anything at all.  If they want $100/barrel, then charge that.  If the "prevailing price" is higher, so what.  Charge lower.

This guy is doing the usual Saudi BS and should be ignored.

Tue, 09/18/2012 - 22:26 | 2809555 RiskAverseAlertBlog
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Too bad runaway energy costs are a function of collapsing refining capacity occurring at the alter of hyperinflationary central bank policy crushing margins. With this in mind, then, there's really nothing the Saudi gang can do to diminish the uproar over the 28 redacted pages of the 9/11 Commission Report detailing this British-created-and-controlled gang's role in that day's events.

Tue, 09/18/2012 - 16:32 | 2808401 samsara
samsara's picture

Ah,  NO

Tue, 09/18/2012 - 16:33 | 2808404 centerline
centerline's picture

Good chance the SPR bullet turns out to be a dud.  If they pull that one, you know they are desperate.

Tue, 09/18/2012 - 16:33 | 2808405 kito
kito's picture

well, oil is suddenly dropping....and this is with a military build-up in the gulf..............somebody is doing something............................

Tue, 09/18/2012 - 18:53 | 2808810 blindfaith
blindfaith's picture

History lesson:

What destroyed the USSR was $8.00 a barrel oil ( NOT as the hype contends that it was Ronald Reagan magic).

Iran wants 150 oil to cripple America.  50.00 would destroy Iran FAST.  Gold or no Gold that our good friends in India and China trade for oil.

Want to show your power...STOP buying Chinese, India, and any country that says "death to America"  OH>>>but you APPLE freaks just gotta have your fix, don't you come hell of America.

Tue, 09/18/2012 - 18:59 | 2808827 centerline
centerline's picture

One word: petrodollar.

Apple customer = brainwashed tech addict.

 

Tue, 09/18/2012 - 21:07 | 2809271 Freddie
Freddie's picture

Idiots who watch TV and Hollywood's shit enable The Matrix.  They are as bad as Apple idiots and The House of Saud.   Americans traded liberty for a clicker and HD.  Morons.  

Tue, 09/18/2012 - 19:23 | 2808883 Darth Rayne
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I don't want any harm to come to any Americans, ever. I will be pleased when this fiat currency experiment ends, hopefully without WWIII.

 

I would really like it if gold was the worlds reserve currency. Or is that anti-American?

Tue, 09/18/2012 - 19:24 | 2808866 Darth Rayne
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This response contains spoilers.

The Saudi's are heavily invested in corporate America. USA swapped them bits of green paper with numbers on for their lovely oil. The oil enabled USA to grow very big and very strong. Saudi wanted gold but were 'convinced' that owning stocks and shares would make them immensely richer. Gold staying at the same price for year after year 'proved' the logic of the idea.

Oops.

Paper wealth + confidence = wealth

Paper wealth - confidence = bits of paper some clown has doodled on

Gold priced as a commodity? Get it while you can. Insure it. Hide it somewhere where you can move it rapidly. Perhaps on a boat.

There are many power plays occuring at the moment. USA is at the centre of many. One of which is Saudi oil vs US Gold.

Saudi need to remember that 'the value of your investment may go up or down. You may even lose more than your original investment.'

USA needs to remember that they still need oil, at least for now. When the American people start to go hungry and get angry don't be surprised to find the gas stations empty. DC know you have guns and hungry people can't walk far!

The rest of the world will breathe a sigh of relief when all US troops are recalled home to bolster homeland security.

This could get quite unseemly.

 

Tue, 09/18/2012 - 19:50 | 2808961 centerline
centerline's picture

Pretty straightforward analysis and pretty much spot on - from one angle though.  But, it is not that simple.  Social complexity and globalization are now part of the mutually assured destruction formula.  And I doubt given the military situation that people will be walking (versus driving) in the US before cities are burning around the globe.  Whose your daddy?  Keep this mind. Right or wrong - the whole system is built on the same foundation.

 

Tue, 09/18/2012 - 16:34 | 2808409 LMAOLORI
LMAOLORI's picture

 

 

Just wait until after the election Gas will go sky high

How the White House Is Keeping a Lid on Oil Prices

Tue, 09/18/2012 - 21:12 | 2809289 Freddie
Freddie's picture

The Ben BErnank's QE printing trying to save Obama and his own job will mean $5 gas is a certainty no matter who wins.

Tue, 09/18/2012 - 16:34 | 2808412 ptoemmes
ptoemmes's picture

SPR = Strategic Political Reserve

Tue, 09/18/2012 - 16:35 | 2808414 gwar5
gwar5's picture

Don't forget Russian oil exports. Putin must be very conflicted over his desire for high prices and a communist president.

Tue, 09/18/2012 - 16:52 | 2808462 AnAnonymous
AnAnonymous's picture

The communist president being a negro will help him decide what is what.

Tue, 09/18/2012 - 16:55 | 2808479 Raymond Reason
Raymond Reason's picture

Putin is a patient man, and soon to be the most powerful man in the world, slava Bogu. 

Tue, 09/18/2012 - 21:16 | 2809306 Freddie
Freddie's picture

Putin is not stupid.

Wed, 09/19/2012 - 15:55 | 2812593 malikai
malikai's picture

He's got to be pretty powerful to be able to pump ~10mbbl/d out of a country with ~80gb in proven reserves.

Odd how Saudi is only doing about the same with ~600gb proven reserves.

Maybe it is in the geology.. Or maybe it is in the "numbers".

Tue, 09/18/2012 - 16:36 | 2808419 booboo
booboo's picture

China will still fuck with Chaiman Maobama just for shits and giggles. I don't think that The Chicago Way is going over too well with the rest of the world and no I don't think they give a fuck about the Daley Machine.

Tue, 09/18/2012 - 16:38 | 2808424 Mr Lennon Hendrix
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"The price now, we believe is high, and it's not supported by fundamentals at all. It's just speculation and geopolitics."

So why has oil production been flat since 2005?  If prices are high then anyone in their right mind would produce more to make that extra dollar. 

Peak oil production, peak EROEI, plain and simple.

And good luck to the House of Saud using sea water to get the last drops out of their wells.  I am sure that isn't a desperate act.

Tue, 09/18/2012 - 16:59 | 2808450 Michael
Michael's picture

The tankers all over the planet are all full up with no place to go, and demand is dropping like a rock because of the depression in the real economy.

Some of those thousand points of light that is the House of Saud will be eliminated, and we will rename the country just "Arabia" again.

Tue, 09/18/2012 - 18:30 | 2808749 ersatzteil
ersatzteil's picture

Don't forget the $3bln oil reserve the American people have generously set aside for Israel in case of need - even if it affects American domestic supply!

Tue, 09/18/2012 - 16:54 | 2808473 samsara
samsara's picture

Exactly,  which is why I answered the question (below)  with a 'Ah, NO'.   They can't.

(and someone voted me down because they hate geology I guess.....)

Tue, 09/18/2012 - 16:50 | 2808432 Threeggg
Threeggg's picture

I think with the combination of the QE4ever announced last week, the Chinese and Russians abandoning trade between them in dollars and deminishing oil consumption; all you're seeing is short covering and frontrunning for the stock quadwitching this Friday. The trading patterns indicate short covering.

The Dollar cannot handle lower oil prices or it will collapse (without Petrodollar sales support from higher and higher oil prices) ! After contract options expiry at the end of this month its "To Da Moon Alice"

Tue, 09/18/2012 - 16:40 | 2808433 LongBalls
LongBalls's picture

Who cares. It's temporary. Profit if you can but as all shorts know. Shorting this market is a fools errand.

Tue, 09/18/2012 - 17:36 | 2808580 Mr Lennon Hendrix
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Doug Kass is short to "Fight the Fed". 

How quaint.

Tue, 09/18/2012 - 16:41 | 2808435 SelfGov
SelfGov's picture

Take what the Bakken has been producing in one month.

Multiply that by 5.

That is how much Saudi Arabia produces in a single day.

Tue, 09/18/2012 - 17:19 | 2808537 CrashisOptimistic
CrashisOptimistic's picture

A man who understands numbers.  

Here's some subtle info for you.  

There are signs of a Bakken rollover far sooner than expected.  There are presently more producing oil wells in basically 1/4 of North Dakota drilled in about 4 years than in all of Saudi Arabia drilled in 70 years.  And they produce that tiny fraction you just quoted. (because the average per well is so small vs KSA)

Think about that.  

Note also there are signs of a rollover in that initial production of new holes drilled has started to fall vs what initially came out of the holes drilled a year ago.  Think about that, too.

Tue, 09/18/2012 - 17:46 | 2808619 MachoMan
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In other words, a well is a hole with a liar at the top?

Tue, 09/18/2012 - 19:21 | 2808875 CrashisOptimistic
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The whole damn industry is based on unconscionable hype.  

When 3 out of 4 holes you drill are dry, you have to hype and tapdance your powerpoint beyond imagining to get people to write checks for those holes, especially after 2 in a row are dry.  So you go up to the money people and you lie about your imagery to get that 3rd hole drilled.

If it's dry, you move on to the next locale and lie some more.

Beyond all this there is "the oil ministry of Iraq", who presently are pumping 3 million bpd and struggle to get that.  Their oil minister is on record claiming 13 million bpd will be pumped in 2017.  That's what he pitches to lease bidders.

The most rosey independent Iraq projections for 2017 are about 4.5 million bpd and none of those project 13 mbpd EVER.

Yet what does IEA use for its outyear projections to balance future supply with expected demand?  Right, 13 mbpd.

Tue, 09/18/2012 - 19:02 | 2808836 IrritableBowels
IrritableBowels's picture

Icing on the cake: scroll to Page 17 for depressing figures re 'production' vs time of average bakken well.  Note the source.  BEST case figures?

https://www.dmr.nd.gov/oilgas/presentations/ActivityandProjectionsWilliston2010-08-03.pdf

I have acquaintances working the title side of mineral acquisitions in NE North Dakota.  Work is slowing to the point of layoffs.

 

Tue, 09/18/2012 - 19:13 | 2808863 CrashisOptimistic
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To go with that tidbit, here's another.  The frantic drilling to get production up . . . last year each well's crew knew where they would next drill 3 wells into the future.  They knew their next 3 hole locations before they started the first.

Word is that it is often the last day of drilling now that they are told where they go next, and they're told "there's no hurry".

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