Oil Market: What’s Saudi Arabia Up To?

Saudi Arabia wants higher oil prices. Really.

At least, that’s what its oil minister has been saying in recent interviews in the US and Europe.

But higher oil prices require a higher world demand for oil, a lower supply of oil, or a combination of both.

The trouble is that Saudi Arabia doesn’t control the world demand for oil, which is growing at a slow pace, tracking a weak global economy.

 And while Saudi Arabia has some control of the supply of oil, it does nothing to make oil prices go higher.

In fact, the Kingdom has been pumping more oil to ease short-term oilshortages, together with other Middle East producers, according to an IEA report released yesterday.

Here are a couple of highlights from the IEA report:

·         Global oil supplies rose by 0.6 mb/d in June to 96 mb/d after outages curbed OPEC and non-OPEC supplies in May. World production was 750 kb/d below last year as higher OPEC output only partially offset non-OPEC declines. Non-OPEC supplies are set to drop by 0.9 mb/d in 2016, to 56.5 mb/d, before rising 0.2 mb/d in 2017.

·         OPEC crude output rose by 400 kb/d in June to an eight-year high of 33.21 mb/d, including newly re-joined Gabon. Saudi Arabia ramped up to a near-record rate of 10.45 mb/d(our italics) and Nigerian flows partially recovered from rebel attacks. Middle East producers sustained record levels, building market share and pushing OPEC’s total output 510 kb/d above a year ago.

·         OECD commercial inventories built by 13.5 mb in May to end the month at a record 3 074 mb. Preliminary information for June suggests that OECD stocks added a further 0.9 mb while floating storage has continued to build, reaching its highest level since 2009.

That could explain why oil prices headed back to $45 after trading briefly above $50.

Apparently, Saudi Arabia isn’t ready to push oil prices above $50. That’s why oil markets should watch what Saudi Arabia does, not what it says.

Source: Forbes
Author: Panos Mourdoukoutas

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