Maine Owl

Saudis are tapped? "Stunning admission" from president

For some years we've been use to hearing a news story that says (roughly) that there is demand pressure/rising price in the oil markets and the Saudis can swing into play and just open the valves wider to pump more oil. That story may be over, and the president has suggested just that.

Because he seems genuinely to understand that high oil prices are hurting the domestic economy, President Bush in the Middle East this week asked for more oil:

Bush Sees Hope of Increase In OPEC Oil Production
By JOHN D. MCKINNON - January 16, 2008

SHARM EL SHEIKH, Egypt -- President Bush says "there's a hope" that as a result of his conversations this week with Saudi King Abdullah, the Organization of Petroleum Exporting Countries "would be encouraged to authorize an increase in [oil] production," White House Press Secretary Dana Perino told reporters on Wednesday.

Based on Mr. Bush's conversations on Tuesday evening with the king, the president "says the king said that [he] understands the situation. He's worried about high oil prices and how they can negatively [affect] the economies around the world," Ms. Perino added.

Saudi Arabia, the world's largest producer, has major influence on OPEC decisions. OPEC next meets to determine production on Feb. 1.

On Tuesday, in response to Mr. Bush's complaints about high crude prices, the Saudi oil minister said that his country would increase production as market conditions dictated. But he appeared to hold out little hope of an immediate unilateral boost in output by Saudi Arabia, which has reserve capacity of about two million barrels per day. Nevertheless, oil prices sank, possibly in response to the comments. Weak retail sales data also appeared to be a factor, however.

But in another press event in Saudi Arabia, he made what Jerome a Paris calls a "stunning admission" recognizing peak oil. First, he responds as follows to a reporter asking for clarification, then later makes some extremely interesting remarks:

Q I just wanted to ask you if you could just clarify a little bit your statement this morning to OPEC. What specific action would you like them to take at their first meeting coming up February --

THE PRESIDENT: I would like for them to realize that high energy prices affect the economies of consuming nations. And that if these economies weaken, those economies will eventually be buying fewer barrels of oil. And having said that, there is not a lot of excess capacity in the marketplace. What's happened is, is that demand for energy has outstripped new supply. And that's why there's high price.

...

THE PRESIDENT: Oil is a commodity; it isn't something you just turn a tap. I mean, it requires investment, exploration, a lot of capital. I talked to His Majesty early on in my presidency in the hopes that they would explore for new fields; they have. They've increased their capacity. But in the meantime, demand has gone up quite substantially.

Q Well, do you want him to open the spigot more? Do you want him to lower the prices?

THE PRESIDENT: Well, that's the question. What does that mean? That's what -- I hope that OPEC, if possible, understands that if they could put more supply on the market it would be helpful. But a lot of these economies are going -- a lot of these oil-producing countries are full out. [emphasis added]

Are the two million barrels per day phantom? Jerome a Paris says this is acknowledgment of the "soft" version of peak oil--that the world is in a production plateau and can't catch up to increasing demand. It would be one thing if the solution was just a little more opening of the taps. But as the president admits, that may not be possible this time.