The only thing more surprising than the comment from Ali Naimi, the Saudi oil minister, that the oil market is oversupplied, is how seriously the market appears to have taken it. The oil price has dipped sharply today, according to some at least, because of Naimi’s comments.
The evidence Naimi cites is that the Saudis cut output last month by some 800,000 barrels per day. Some of this may have come from reduced Japanese output, after the earthquake put many of its refineries out of action. But this demand is likely to return relatively soon – it certainly shouldn’t be viewed as gone from the market in the long term.
In this week’s readers’ Q&A session, Amrita Sen, oil analyst at Barclays Capital, answers your questions.
In the first of two posts, she discusses whether speculation is driving up the oil price, whether such an increase could trigger another recession and when “peak oil” might occur.
Later, she will discuss drilling in the US, national oil subsidies and growing demand from the Middle East.
(NB – Because of a very high volume of questions, we were not able to tackle every question submitted. Apologies if yours was not answered.)
Next week, Michael Bromwich, director of the US oceans regulator, will be answering your offshore-drilling queries. Email questions to firstname.lastname@example.org by the end of Sunday, April 10th.
But for now, over to Amrita:
With Brent Crude at $115 a barrel, it is little surprise to see the International Energy Agency talking in terms of oil remaining at $100 for 2011. And if it does, the organisation expects OPEC members to generate over $1,000bn in export revenues for the first time, as the FT reported on Wednesday.
Little wonder that Saudi Arabia and the Gulf states, which dominate the 13-nation cartel, can afford to splash out on big public spending plans to help quell social unrest. But it is expensive – Saudi Arabia now needs an oil price of $83 a barrel to balance its 2011 budget. And it may not work: history suggests that as countries grow richer, their citizens want rights as well as rewards.
Political scientists are still refining the theory but they generally accept its central tenets. The development of Europe, east Asia and Latin America has produced many examples of countries where, as incomes have risen, authoritarian regimes have been replaced with more democratic systems.
As Brent crude climbs to $118 a barrel on the back of events in Libya, Javier Blas, commodities editor, talks to Daniel Garrahan about how high prices could go if the unrest in the Middle East spreads to Saudi Arabia.
We now have confirmation from the International Energy Agency that the Saudis have indeed raised their output.
The IEA has not disclosed its estimate of the scale of the increase, but nor has it denied earlier suggestions that Saudi Arabia has begun producing above 9m barrels per day. Its level of output in January was 8.6m b/d, so the kingdom appears to have raised its output by some 400,000 b/d.
A Saudi oil official declined to confirm or deny any of these figures earlier today. But it seems that the talks with European refiners on the quantity and quality of oil they required have indeed borne fruit.
The news confirms what has been priced into the market since last night (note: this chart is WTI, rather than our usual Brent, because of some chart formatting errors – but the direction is the same).