Plan Would Lift Saudi Oil Output to Highest Ever
June 14th, 2008What does one have to do to get on the list of traders who receive Saudi planned oil production numbers before the information is announced? Actually, I don’t want to know.
It will be very interesting to watch how this unfolds on Monday.
Via: New York Times:
Saudi Arabia, the world’s biggest oil exporter, is planning to increase its output next month by about a half-million barrels a day, according to analysts and oil traders who have been briefed by Saudi officials.
The increase could bring Saudi output to a production level of 10 million barrels a day, which, if sustained, would be the kingdom’s highest ever. The move was seen as a sign that the Saudis are becoming increasingly nervous about both the political and economic effect of high oil prices. In recent weeks, soaring fuel costs have incited demonstrations and protests from Italy to Indonesia.
Saudi Arabia is currently pumping 9.45 million barrels a day, which is an increase of about 300,000 barrels from last month.
While they are reaping record profits, the Saudis are concerned that today’s record prices might eventually damp economic growth and lead to lower oil demand, as is already happening in the United States and other developed countries. The current prices are also making alternative fuels more viable, threatening the long-term prospects of the oil-based economy.
President Bush visited Saudi Arabia twice this year, pleading with King Abdullah to step up production. While the Saudis resisted the calls then, arguing that the markets were well supplied, they seem to have since concluded that they needed to disrupt the momentum that has been building in commodity markets, sending prices higher.
The Saudi plans were disclosed in interviews with several oil traders and analysts who said that Saudi oil officials had privately conveyed their production plans recently to some traders and companies in the United States. The analysts declined to be identified so as not to be cut off from future information from the Saudis.
Last week, King Abdullah also took the unprecedented step of arranging on short notice a major gathering of oil producers and consumers to address the causes of the price rally. The meeting will be held on June 22 in the Red Sea town of Jeddah.
The Saudis have promised to increase output repeatedly over the last few years, with pretty much zero effect, except perhaps over the extremely short term (a few days). This might be the straw that breaks this overbought market’s back, but if all other factors remain equal, I don’t think this will have a long term effect on the market any more than all the previous alleged increases did.
At most, it might provide a nice opportunity to buy on a dip.
How do you think the Forex is going to react to this? Particularly Gold and the USD?