Blazoned on the top of the CNBC News page was the headline, "US Futures Turn Higher Following OPEC News." The article goes on to advise that OPEC was considering raising production for the first time in two years.
Just six weeks ago we were given a similar pep talk by Saudi Oil Minister Ali al-Naimi. Then, with oil prices in the high eighties a barrel (today about $105/bbl for WTI) he responded to entreaties by the International Energy Agency (IEA) for making more oil available given that prices then were already negatively impacting the world economy. Mr. al-Naimi, assuming a mantle of statesmanship announced he was optimistic about energy markets alluding to Saudi Arabia's spare capacity of some 4.5 million barrels/day which could be used to achieve global "supply-demand balance" (please see "Oil Drops as Saudi's Signal More Supply"). The sense was that Saudi Arabia would do what it could to bring supply into balance and a lid on prices.
Well that was then and this is now. In spite of al-Naimi's then dulcet words, the Saudis quickly reverted to form. Given the turmoil in North Africa and the Gulf region and its impact on the price of oil, here was an opportunity for Saudi Arabia to show its colors. A new era of leadership and responsibility beckoned. And what happened?
On March 5 Saudi Aramco, the Saudi state oil company, 'sensitive' to the turmoil at large, announced an increase. I repeat, an increase in price for oil deliveries to its European and Asian customers. Here, a clear example of statesmanship being trumped by dollars and cents ("Saudi Aramco Raises Prices for Asia, NW Europe" Bloomberg 03.05.11). Oh yes, for their very limited shipments of oil to the U.S., prices were reduced a touch given the ample supply of West Texas Intermediate crude (WTI). Did politics come into play. We don't know, but this is no time for the Saudis to upset U.S. policymakers given Washington's current focus on determining such core policies of primordial interests to the Saudis as "regime alteration" vs "regime change." And all that additional lucre from hiking the price to the Europeans and Asian buyers will amply cover those lobbying fees along the Beltway to assure that American policy lands on the 'right side' of that issue.