01/25/2011 08:20 am ET | Updated May 25, 2011

Oil Drops As Saudis Signal More Supply

It would border on the impolitic to claim an iota of credit. Yet Bloomberg reported yesterday, "Oil Drops to Five Week Low as Saudi Arabia's Al-Naimi Signals More Supply." The article goes on quoting, "It suggests that the Saudis aren't interested in higher prices..."

Oil fell to its lowest level in five weeks, to the high $80's/bbl, after Saudi Arabia's Oil Minister Ali Al-Naimi announced that he was "optimistic" about energy markets alluding to Saudi Arabia's spare capacity of some 4 million barrels per day (bpd) which could be used to achieve global "supply-demand" balance.

On January 19th this space posted "Noble OPEC Criticizes the International Energy Agency" commenting on OPEC's Secretary General El-Badri venting his outrage at the International Energy Agency (IEA) for having categorized then current oil prices as "alarming." The IEA's concern was immediately rebutted by Secretary General El-Badri countering forcefully "At the moment, fundamentals show there is more than enough oil on the market," this even though OPEC had not changed it quotas since December 2008 when the price was $40 a barrel and King Abdullah posited a price of $75 as "fair" and Al-Naimi categorized a price of $75 as "noble".

El-Badri's response to the IEA's call for more production was the usual OPEC mantra, "OPEC as always is watching the market carefully. We remain committed to stability." The usual words coupled with neither action nor responsibility.

The post on the 19th went on to hypothesize, "What if El-Badri had said in response to the IEA, "Yes, we agree with you, current prices are alarming and a risk to world's economy. Especially at levels so significantly higher than the $75/bbl we consider to be "fair". We will do what we can to rectify this situation. As you are aware Saudi Oil Minister Al-Naimi has some 4.5 million (bpd) pumping capability which are being held idle and on standby. Certainly he and all of us at OPEC will do our utmost to bring about a price which we consider "fair" and tolerable to the world's economy."

The post went on conjecturing, "Don't hold your breath, but were it to happen it would send the speculators to the hills and evolve an entirely new relationship between oil suppliers and consumers around the world, one of mutual respect and interdependence."

Well Oil Minister Al-Naimi's signals and comments these past days are a very significant first step. Yes, prices are still at levels approaching a King's ransom, but Al-Naimi and Saudi Arabia need be complimented for the change in tone that has altered what otherwise has been an on going and grating discourse between oil buyers and sellers. Did the January 19th post help set a different tone? Who knows and who cares. What is important is that Al-Naimi responded positively to the IEA's entreaties and that is very good for the world's economy.

Bravo Oil Minister Al-Naimi! And for those familiar with writings coming from this corner, this is not faint praise.