Home Page - Gulf in the Media
HomePoliticsEconomy                               Set Gulfinthemedia.com as home page
Opinions
"Postings of opinions published in the Gulf and international newspapers
 Print  Send This Page
Save Listen to this Article
Saudi Efforts to Correct Oil Prices   

Al Hayat - 28 March, 2012
Author: Walid Khadduri

Last Monday, Saudi Arabia reaffirmed that it will work both on its own and in cooperation and coordination with GCC countries and other oil-producing countries in OPEC and outside, to restore oil prices to fair levels for both producers and consumers, as well as the oil industry overall. The Saudi cabinet, presided over by the Custodian of the Two Holy Mosques King Abdullah bin Abdul Aziz, confirmed at the end of its latest weekly periodical meeting that the Kingdom is committed to work with consuming countries and through the International Energy Forum to provide adequate petroleum supplies and to stabilize the markets.

Then in Doha last Tuesday, Saudi Oil Minister Mr. Ali al-Naimi said that there are no problems in oil market fundamentals, in the sense that the supplies available are adequate to meet demand, even surpassing the latter by about 1.5-2 million barrels per day. This means that there is no cause for high prices, despite geopolitical developments and speculation. Mr. Naimi also stressed that Saudi Arabia is ready to increase its output by nearly 25%, reaching the maximal productive capacity of 12.5 million barrels per day, in addition to tapping into millions of barrels of its oil reserves located all around the world, close to consumer markets.

The ministerial statement as well as the statement of the Saudi Oil Minister raises important questions. First of all, why is Saudi Arabia taking the initiative to restore prices to fair levels?

The rapid and unnatural hike in prices has big downsides for the major oil producing countries themselves, as it leads to the promotion of alternative energy sources, hurting producers in the long run. The evidence for this is clear. The United States, for instance, the largest importer of oil, is now exporting both oil and natural gas, both from shale sources. So with the consuming countries investing in these industries when prices skyrocket, the alternative energy industry continues even when prices fall again in the future. This is an extremely important challenge for oil-producing countries with very large reserves, which want to see oil continue to play a large role in the world energy basket.

The attempt to curb the rapid and dramatic rise in prices is necessary to help the process of recovery of the world economy, especially in developing countries. It is therefore not in the interest of oil-producing countries for the global economy to suffer more collapses, or for the global economic crisis to endure for years to come. Such a scenario would mean the possibility of a collapse in demand for oil and, consequently, a collapse in oil prices. The oil industry, along with producing countries, faced serious difficulties when prices collapsed to $ 30 and even $ 10 per barrel. It is therefore wiser for the producing countries to rush to calm the markets before they spiral out of control. Developing countries also face challenges. Indeed, many Arab non-oil producing countries and their citizens are suffering from the current rise in prices, and the same goes for many non-oil producing developing countries.

Add to this the issue of the people’s aspirations in oil-producing countries. To be sure, their vision has been obscured by a dense cloud arising from the rapid rise in prices, and their false belief that they have the right to receive unreasonable increases in wages and government handouts, as though oil prices will only rise and would not fall in other periods. This makes it impossible for the state treasury to fulfill obligations in such an eventuality.

There are concerns as well, especially in producing countries that lack rigorous financial control, of rampant corruption, with embezzlement and bribes of billions of dollars without any accountability, as a result of the uncontrolled flow of money, as is the case in many Arab countries.

This raises a second question: What is meant by ‘fair prices’?

There is no particular fair price for oil. Instead, this price is determined by comparing oil prices to the prices of alternative energy sources in the market. For some countries, what they consider a fair price is what the state’s budget requires in terms of oil revenues, and is therefore a justifiable price for a particular function (but this, naturally, cannot be considered a fair price). Some oil experts believe that the current fair price is about $ 100 per barrel.

The third question concerns the damage that the global economy may sustain as a result of high oil prices. Focus is once again on oil prices, especially with their recent dramatic increase, and at a time where the European sovereign debt is seeing some breakthroughs. In this context, the IMF managing director Christine Lagarde has warned that oil prices may rise 30 percent further should there be shortages in Iranian oil supplies, and that such an increase in prices will lead to ‘serious consequences’ for the world economy. There are widespread fears at present that the European economic crisis, if not addressed quickly, may spread to other parts of the world, including emerging countries (China, Brazil and South Korea), which have managed to avoid recession so far. However, it is very possible that these emerging nations may see a recession during the coming period, as a result of a decline in their exports, and the same applies to oil-producing countries, as demand for their oil is expected to fall in tandem with increased oil prices. Also pertinent of course are the U.S. presidential elections this autumn, and the concerns of the Obama administration regarding the implications of rising local gasoline prices for the electorate.

Is it possible to curb the record rise of oil prices?

Oil prices have fallen gradually from about $ 127 per barrel to about $ 124 per barrel after the recent statements. However, it is important to underscore the fact that the attempt to correct oil prices comes at a difficult time for the oil industry, as many countries have begun to reduce or halt their imports of Iranian oil. Furthermore, there have been unconfirmed reports that both the United States and the United Kingdom have begun tapping into their strategic oil reserves to curb the high gasoline prices in the two countries.

So what might help achieve a significant fall in oil prices?

The markets expect a significant increase in the commercial inventories of the oil companies, and also that OPEC will maintain a spare productive capacity of about 4 million barrels per day, rather than the 2.5 million barrels per day currently available. Of course, this is no easy matter. Indeed, the higher the production of oil countries is, the lower their spare productive capacity becomes. The markets are also concerned that the increase in production may be used in the summer to meet the high demand in the Gulf countries in the summer, instead of making their way to the global markets.

* Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
 
When the Terrorists Become 'Activists'
Source : Asharq Al-Awsat  
Date : 2014-10-21
Author : Salman Aldossary
Saudi Arabia has issued a death sentence for a Saudi Shi’ite religious figure, Nimr Al-Nimr. The charges that have been proven against him are numerous and quite varied....
ISIS is real, not a nightmare
Source : Asharq Al-Awsat  
Date : 2014-10-21
Author : Abdulrahman al-Rashed
Prior to June 6, Iraq's former prime minister, Nuri Al-Maliki, treated warnings about the Islamic State of Iraq and Syria (ISIS) with disdain, claiming reports about the group were meant...
Efforts to conscript Turkey
Source : Arab Times  
Date : 2014-10-21
Author : Yousef Awadh
It is glaring that the international community has reached the dead end in its bid to persuade Turkey to join the international actions against DAESH. Through the statements made by...
Need for more self-employed entrepreneurs in the Sultanate
Source : Oman Daily Observer  
Date : 2014-10-21
Author : Ali Ahmed al Riyami
While the number of Small and Medium sized Enterprises (SMEs) in the Sultanate is on the increase, there are still not enough individuals with entrepreneurial spirit going into business for...
Capital markets and global oil price fallout
Source : Oman Daily Observer  
Date : 2014-10-21
Author : Lo'ai Batainah
The change in investors' sentiment and decisions means a lot for analysts and observers; it means a shift in investors' appetite and unwillingness to face any possible financial or operational...
Happiness index
Source : Kuwait Times  
Date : 2014-10-21
Author : Labeed Abdal
The happiness index was launched recently in Dubai as a unique initiative to detect people's level of contentment from government services. This is a positive step that gives the impression...
The Three-Minute Policy
Source : Kuwait Times  
Date : 2014-10-21
Author : Thaar Al-Rashidi
In view of the extreme fogginess overwhelming our political practices where visibility is much less than one meter in most cases, it is hard to predict what might happen tomorrow....
Protecting scholars in war-torn states essential for rebuilding
Source : Gulf Times  
Date : 2014-10-21
Author : Mark A Angelson and Allan E Goodman
The application from an Iraqi university professor to the Scholar Rescue Fund was chilling. It described how he had been pressured relentlessly by a local militia to promote its agenda...
Muddy anti-terrorism policy
Source : Gulf Today  
Date : 2014-10-21
Author : Vijay Prashad
The United States and its allies continue to bomb northern Iraq and Syria. The purported target is the ISIS, whose territory stretches across the borders of the two countries. The...
Who will help Turkey help Kobane?
Source : The Peninsula  
Date : 2014-10-21
Author : Mevlüt Çavuolu
The plight of the small town of Kobane has become the focus of the world’s attention amid the devastation and misery of Syria. With each day the reign of terror...
Who supplied Saddam's germ weapons?
Source : Khaleej Times  
Date : 2014-10-21
Author : Eric S. Margolis
While covering Iraq in 1990, I discovered the United States and Britain had been secretly building a germ weapons arsenal for Iraq to use against Iran in the eight-year-long Iran-Iraq...
The killing fields
Source : Arab News  
Date : 2014-10-21
Author : Bikram Vohra
There are hotspots that the sun sends out and then there are those that are man-made and treacherous. A genuine hotspot and going beyond the mere fluff of a label...
The Emergency is Not the Islamic State but War
Source : The Counter Punch  
Date : 2014-10-20
Author : Kathy Kelly
On August 9, 1983, three people dressed as U.S. soldiers saluted their way onto a U.S. military base and climbed a pine tree. The base contained a school training elite...
Conflicting priorities for anti-ISIS coalition members
Source : Al Arabiya TV  
Date : 2014-10-20
Author : Raghida Dergham
Turkish President Recep Tayyip Erdogan will not compromise on the conditions he set out to President Barack Obama for entering as a direct party in the war on ISIS. He is...
Stop pointing fingers. Many sources lie behind ISIS's rise
Source : Al Arabiya TV  
Date : 2014-10-20
Author : Manuel Almeida
The tens of thousands of jihadists and would-be-jihadists that have flocked to Syria, coupled with the rise of ISIS, have placed the public debate about radicalism on the spotlight. This...
Total 200 Results in 14 Pages
1 
For more news, views and reports about this topic, please subscribe
to GRC website: www.grc.net
Wed Oct 22, 2014| 27-ذو الحجة-1435هـ
Saudi message to Yemeni factions: Defeat agents of destabilization!
Qatar infrastructure spending creates opportunities for international firms
US drops weapons for Kurds fighting IS
At least 60 killed in Yemen violence
Standard Chartered to exit SME business in UAE next month
Iran yet to keep N-probe promise: IAEA
SR47.19m rail deal to ensure line safety
ISIL attacks affect energy projects N. Iraq: Turkey
493 file papers for municipal, parliamentary polls in Bahrain
Oman's banks get extension to comply with funding of SMEs
UAE takes first step to Mars mission
Kuwaiti ministry denies Ebola cases as MP queries health minister
Coronavirus 'still a lingering threat'
Saudi oil exports fall to lowest in 3 years
    Newspaper Editorials
No winners in Libya
The airdrop paradox
More>>  
    Opinions
When the Terrorists Become 'Activists'
ISIS is real, not a nightmare
More>>  
    GCC Press Agencies
Day's main stories from the GCC Press Agencies
    Reports
Justice in Transition in Yemen
The United Arab Emirates (UAE): Issues for US Policy
More>>  
    Bank Reports
GCC Markets Performance – May 2014
Saudi Arabia: Baseline Macroeconomic Forecast 2014-16
More>>  
    GRC Analysis
Saudi Arabia and the ASEAN Periphery: Cambodia, Myanmar, and Brunei
NATO and the Future of Gulf Security.
Saudi-Vietnam Relations
    GRC Commentary
Price of not heeding Kingdom's advice
On Relations between Rulers and Citizens: The Need for a New Social/Political Contract in the GCC States
Key Issue Facing the Saudi Ruling House.
    GRC Book Review
Beyond Regionalism? Regional Cooperation, Regionalism and Regionalization in the Middle East
India, GCC and the Global Energy Regime: Exploring Interdependence and Outlook for Collaboration.
    GRC Press Release
Gulf Research Center press releases to the media
    GRC Publications
Labor Market Integration in the GCC Countries
Integration Processes in Latin America
GCC’s External Trade Integration: An Assessment
    GRC Newsletters/Bulletins

Enter your email to get the Newsletter
Go
      
Privacy Policy | Contact Us | Terms & Conditions | About Us |
Weather | Qibla Directions | Hijri Date Conversion Tool
Full Page :total time:0  |   01-- 01 Middle Page :0  --   | Right : 01 - 01--en--sess-enreq-en-coming