Further, despite today's more-diverse oil market characterized by dozens of suppliers, any Saudi decision to not cut production will lower oil prices, Energy Trader Jim Dietz told BloggingStocks Friday.
Saudi Arabia possesses the largest, proven oil reserves in the world. The kingdom also has the biggest, quickly-marketable spare production capacity in the world, estimated to be 1.5-5.0 million barrels of oil per day, depending on the analysis.
'Saudis will let oil price fall, a lot'
"The Saudis are fully aware of the grave situation facing global financial markets and economies. The Saudis are going to let the price of oil fall, a lot. Other OPEC members like Iran or Venezuela may call for a production cut and try to protect their interest, but it's a non-starter, an after thought," Dietz said. "The Saudis know that every stimulative tactic must be used to keep commerce moving and eliminate stress and a lower oil price is part of that solution." (Dietz added that he had no open energy trading positions, his normal stance for a Friday.)
Oil fell $6.94 to $79.65 per barrel Friday at mid-day, as a near-panic atmosphere permeated markets as stocks plunged worldwide and U.S. stock markets declined for an eighth consecutive day. At 12:05 p.m. EDT, the Dow was down 313 points to 8,265 and the S&P 500 was down 38 points to 871.
"An $80 oil price is too high for this economy. It probably was too high for any economy, but that is a debate for another time. Right now, the oil market senses that the Saudis know the price of oil must go lower to reduce financial system stress," Dietz said. "And as the Saudis go, so goes the price of oil."
Iran, Venezuela, and Libya, among others, seeking to maintain current oil revenue, may cut oil production anyway at OPEC's special meeting November 18, or at least claim they will, but it won't hold up oil's price, so says economist Peter Dawson.
"Iran and Venezuela could cut or claim to cut, but it won't make a bit of difference, and their production cut won't last," Dawson said. "Once they see that Saudi Arabia won't cut, Iran and Venezuela know that a production cut by them would not be enough to keep oil prices from falling, and consequently their production cut would simply lower their countries' revenue, so they won't cut."
Dawson said he expects the Saudis to let the price of oil fall to $60 or even $50 before considering a production cut.
"Right now, the focus is on stabilizing the global financial system because the Saudi's know they're not going to sell much oil at any price if the global economy collapses, and you all of a sudden have one-half the customers you previously had," Dawson. "So the Saudi's stance will depend on the condition of financial markets and the global economy. The Saudis may let oil fall below $50 to $40 or lower, if, after consulting with world leaders, they believe it's necessary to maintain the soundness of the global financial system.
Oil / Economic Analysis: In retrospect, as economist Dawson also noted, $80 per barrel oil, adjusted for inflation, is still a very high price for crude, from a historical standpoint. And that only underscores the destructiveness - - and idiocy - - of $145 per barrel oil.
Underscoring, the high oil price is not solely responsible for the global financial crisis: it was but one factor. That said, a low oil price, by reducing financial stress, can play a role in the recovery / healing of the global economy.
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Reader Comments (Page 1 of 1)
10-10-2008 @ 1:50PM
Gary E. Sattler said...
I told you, oil's ceiling price is $73. Above that, everything changes.
We need economical, petroleum free internal combustion in five years.
MAKE IT HAPPEN AMERICA!!!
10-10-2008 @ 2:23PM
william lindblad said...
Hmm! On the prospect that falling oil will aid in recovery - yes, but not everywhere.
Some of the producing nations that are not recession will get to join the rest. Although it may take time, oil will recover and I agree with Gary of the 1st post. If we get reasonable pricing into our economy we should be diligent in continuing to seek ways to reduce our dependence. Every time oil spikes - we talk, but take little continual action. It is high time that we take action and do not relent until a good answer is at hand.
10-10-2008 @ 2:59PM
Brian said...
Just goes to show how much these "experts" (who were predicting $250 per barrel prices within 5 years) really know! I also agree with Gary. Thirty years ago, no-one thought we would still be using fossil fuels. If we weren't dependent on oil, a lot of power would be taken away from countries who dont deserve to have it and maybe a few less wars would be fought over it.
10-12-2008 @ 7:51AM
EMIL J KOVACH JR said...
CRUDE OIL Has A Real Market Price, and 200.00 AIN'T IT!.The Important Members Of OPEC, Were First To Identify An Economic Slow Down,Caused, In Part, By HIGH SPECULATION In The Crude Oil Price, This Lead OPEC, To Also Believe, The Speculation Was Extending Into The Stock, And Other Futures Markets.
T he World Wide Economy, And Crude Oil--Cannot, And Will Not, Be Controlled By Wild Speculation, Which Was Fueled By Artificially High Prices In All Markets.
Stability In The Crude Oil Price, And Fair Market Value, Will Encourage Other Markets, To Find The Same,
The Important Members Of OPEC, Understand That. And Recognized It Early On.
And Will Continue To Be Part Of The Solution.
EMIL J KOVACH JR