Action, reaction?
Bloomberg reports some constructive news from authoritative Saudi Arabian sources in advance of its June 22 meeting of producers and consumers of oil. It appears that Saudi Arabia may have moved from mere jawboning about speculators to proposing and executing “sizeable” increases in production:
Saudi Arabian Oil Minister Ali al-Naimi said record prices are “unjustified” and the state oil company signaled it may soon start pumping from a new field…
Saudi Arabia invited nations including the U.S., U.K. China, Germany, India and Japan to the meeting, al-Naimi said. The kingdom is the world’s largest oil exporter and the most influential member of the Organization of Petroleum Exporting Countries…The June 22 “meeting in Jeddah will discuss the increase in oil prices, which are unjustified by market fundamentals, and suggest appropriate solutions,” al-Naimi said in a statement today. The kingdom will start pumping oil from its new 500,000 barrel-a-day Khursaniyah oilfield within the next month, a board member of Saudi Aramco said…
“This meeting is expected, God willing, to produce positive results that will contribute to stabilizing the international oil market,” al-Naimi said. The country is likely to propose a “sizeable” increase in oil production at the meeting, the Middle East Economic Survey reported today…Current oil prices threaten the global economy and hurt the long-term interests of oil producers, Ibrahim al-Muhanna, an adviser to al-Naimi, was cited as saying by the weekly newsletter, based in Cyprus.
Khursaniyah will start “very, very soon, definitely within the next month,” Khalid A. Al-Falih, who is also an executive vice president at Saudi Aramco, said in a telephone interview today. He couldn’t say when full production would be reached. The field is forecast to produce as much oil as the daily output of Ecuador, OPEC’s smallest member.
We’ve discussed the coming increases in Saudi oil production previously. Interestingly perhaps, this frontal assault from Saudi Arabia against the current oil price spike had little immediate impact, with prices falling a mere 1.7% to $134 a barrel or so. Question: if the oil market is effectively ignoring what Saudi Arabia — lynchpin of OPEC and the world’s spare oil capacity — says about bringing down prices, does that mean we are anywhere close to the market top and plunge that some have forecast? Ignoring the Big Dog does not appear, at first glance, to be a sign of market rationality.