24/04/2011
Oil prices reach near record highs despite market glut
Petroleum and Mineral Resources Minister Ali Al-Naimi
Oil prices are on a roller-coaster, oscillating in the red zone. The prices needs to go down, consumers as well as producers concede.
Saudi Arabia’s Minister of Petroleum and Mineral Resources Ali Al-Naimi, the virtual mover and shaker of the energy world, calls the price rise “unjustifiable.” OPEC Secretary General Abdullah El-Badri says oil producers are “concerned.”
And the head of the International Energy Agency (IEA), Nobuo Tanaka, is terming the prices “very high,” warning that this could undermine economic growth. “Certainly current oil prices are very high . . . (we are) alarmed that it could negatively impact the economic growth,” Tanaka told reporters in Kuwait last week. “The high price is pressuring down the growth rate of oil demand,” he added, citing the examples of the United States and China where demand erosion is getting apparent.
And in the meantime supplies appear adequate to meet the global appetite. Saudi Arabia underlined last week that markets were “actually oversupplied.” And for a change, even President Barack Obama is underlining that supplies are sufficient to meet demand. Speaking at a community college in suburban Virginia last week, he said: “It is true that a lot of what’s driving oil prices up right now is not the lack of supply. There’s enough supply. There’s enough oil out there for world demand.”
This could also be gauged from the fact that Saudi output in March was down to 8.292 million bpd from 9.125 million bpd a month earlier. Although some analysts in the western media portrayed this as a Saudi decision, the fact remains that Saudi Arabia did not willfully opt for it. Markets forced it. There were apparently no takers for the additional volumes, most here in Dhahran, the virtual global energy capital, insist.
But indeed the million ... or rather the billion-dollar question is, despite all this, why are markets so erratic? What is keeping the global crude markets bullish?
The regional uprising and the associated political uncertainty has contributed, yet the fact remains the resultant outage has not really stretched the global demand-supply balance. Most fingers today point to speculation as the culprit. In a rare outburst, President Obama too blamed speculators for driving the oil prices higher and higher. That was interesting.
And this position is almost what OPEC has been clamoring for ages, it now seems. Minister Al-Naimi reiterated last week too that speculation over the future oil markets is mainly behind the current hike. Secretary General Badri has also stressed once again on introducing “some regulations” to curb speculation in the oil markets.
This is a window of opportunity. The growing convergence of views on the critical issues of the level of supplies and speculation is monumental -- and indeed healthy -- to say the least. This is a rather unusual development. All of a sudden speculation seems occupying the center stage. What a transformation indeed!
