THE BLOG

New Highs for Oil, Saudi Crocodile Tears, Ecuador's Elegance

05/25/2011 12:30 pm ET
  • Raymond J. Learsy Author, 'Ruminations on the Distortion of Oil Prices and Crony Capitalism'

300,000 Barrels a day. That's all. After his second humiliating
hat in hand, hand holding visit in five months with King Abdullah of Saudi
Arabia all that President Bush could coax from his 'friend' was an
exceedingly modest increase in oil production, more token than meaningful,
of 300,000 barrels/day. This to counter the steep rise in the price of oil at
the well and its painful consequences at the pump.

300,000 barrels a day! Merely a drop in a sea of barrels, especially from
a producer who has the largest known reserves in the world and who,
according to senator Byron Dorgan (D-ND) "has been producing
800,000 barrels less than they did two years ago."

Please see GovTrack: Senate Record: ENERGY PRICES.

For those interested in the impact this production cutback has had on the
price of oil, know that the price of oil has escalated by some 150% since
the inception of those cutbacks, delivering a body blow to the world
economy.

For those pointing at the U.S. dollar as the culprit in this rapacious price
scenario, please understand the erosion of the dollar's value over the same
period was a far more modest circa 25%.

Pointedly not responding to President Bush, but to "50 countries worldwide"
intoned Saudi Oil Minister al-Naimi. "Our response is positive." This while
Prince Saud al-Faisal observed "The president showed great concern for
the impact on the American economy" adding, one can well imagine
through crocodile tears of concern, "We of course sympathize with
that." No mention of course that he was talking about the 'economy' that
was the de facto guarantor's of Saudi Arabia's sovereign
independence and the House of Saud's reign. Being the 'economy'
that financed the American military presence in the Gulf, and thereby
Sunni Saudi Arabia's only persuasive deterrence to Shia expansionism.

Even Bush, now keenly aware that 300,000 bbls/day is but a band aid
given the recent escalation in oil/gasoline prices, most especially for him
in this election year, was reduced to commenting ,"It's something but it
doesn't begin to solve the problem", and then proceeded to lash out at the
Democrats and his perception on their varied failings. Far be it for him to
turn justifiable and righteous anger at his good friends, the Saudis, who will
be far more disposed than the Democrats to contribute generously to the
soon to be the focus of his interest, the George W. Bush Presidential Library.

And then there is Ecuador. Without Mr. Bush's pleadings, and without the
entreaties of the "fifty countries" who sought relief from Saudi Arabia's
production constraints, acted with elegance and on its own. Without being
prodded, showed the kind of responsibility, intrinsic character and
humanitarian concern that one no longer dares hope for from Mr. Bush's
'friends" in Saudi Arabia.

Little Ecuador broke ranks with its fellow OPEC members, saying it would
push for a rise in oil output. Galo Chiriboga, Ecuador's oil minister said an
increase in oil production was necessary to help poor counties coping with
high prices. This in glaring contrast with Saudi Arabia where they are
building cities in the sand or burnishing their extravagantly opulent palaces,
all the while depriving the world not only today but foreclosing for the future any
increases in production (Al Naimi was recently quoted that oil demand did
not warrant expansion of production capacity beyond the 12.5 million/day to
be reached next year). And getting away with it. This from a nation whose
current suzerainty extends over a resource of primordial importance to the
world's economic welfare and whose sense of responsibility extends to
extorting the highest price possible, consequences be damned.

Just imagine the outrage if the United States announced that it was in
the process of forming an "Agopec", a cartel of grain growing nations
together with Canada, Brazil, Australia, and Argentina.
That as the largest sovereign grain producer, it would assume a
leadership role in the new cartel. You can well imagine the howls of outrage
and indignation that would be leveled, especially at this moment of growing
food constraints and dietary changes as the specter of widening food
shortages spread in challenged economies around the world.

But its not the same, you say. Oil is a finite commodity. Well, yes that is
true in the sense that everything is finite. But importantly consider this.
If oil is finite so is the production of grains and foodstuffs. To harvest yields
large enough to feed the world's growing population farmers
throughout the world will have to add to their soil ever larger quantities of
plant nutrients and chemical fertilizer such as phosphates, potash and
nitrogen/nitrates in varied forms and applications. Without such inputs crop
yields would not be able to feed the world. Starvation would be rampant.
Yet each of these nutrients is as "finite," if not more so than oil (it takes
some five years to bring a greenfield potash plant into production).
An 'Agopec' probably would not be tolerated, nor given its levels of
irresponsibility to the world's well being, neither should OPEC be tolerated.

A case in point. The OPEC disease is endemic and brazen. As if to counter
President Bush's pleadings for increased oil supply, Iraqi oil minister and
OPEC member Hussain al -Sharistani just recently opined, as if to instruct
President Bush, "There is more oil on the market than consumers want."
Another "surge", anyone?