Friday, September 23, 2005

Bad News for Duck's Side of the Oil Wager

NEW YORK (Sept. 23) - [All emph. add.] Crude oil prices dropped sharply Friday, the second straight day of declines, as traders welcomed news [...] that damage to refinery capacity in the Gulf could be less severe than originally feared. [...]

Saudi Arabia's foreign minister said in an interview [...] that he would like to see the price of crude fall by about $20 a barrel below what it is now.
Prince Saud al-Faisal said there is no shortage of oil, and that prices should stabilize at $40 to $45 a barrel.

Saud said a big problem with energy markets is a lack of refineries in the United States and elsewhere. He noted that Saudi Arabia had sought to help build a refinery in the United States with no takers. It is building two refineries in Saudi Arabia, he said.

"We are adding barrels of oil on the market," Saud said. "It has no place to go."

- By MICHAEL J. MARTINEZ, The Associated Press

While Arabia has a lot less spare capacity than it likes to portray to the world, they're still the 800 lb. gorilla of oil production, (although not for much longer), and if they're committed to lowering prices, it's a long-shot to bet against them.

As a sidenote, it's a very smart move for Arabia to shift away from merely selling raw materials, and move into value-added products, i.e., exporting gasoline and other fuels instead of just crude oil.


Blogger Duck said...

Permit me to be skeptical of any statements coming out of the Saudi kingdom. They have been making these same statements since last year when oil first shot above $40. The problem is that any new production they bring online will be met by increased demand or decreasing production by other producers, including the US. You have to realize that Hubbert's model accounts for new production, as every oil resource will have a production profile that rises, peaks , then declines. New sources have to be found just to replace declining sources.

The point of the volatility that we've been seeing the last 2 years is not that speculators have somehow gained control of market mechanisms to satisfy their own greed, but that supply has been tight enough to magnify any short term hiccup in the distribution system.

September 25, 2005 6:51 AM  
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November 15, 2005 10:58 AM  

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