Deep Blade Journal

An important figure in the OPEC era of the 1970s has stood up for Saudia Arabia’s manhood. A Thursday CNN story reports (update 11/25/2004: replacement link for that story) that according to former Saudi oil minister Sheikh Ahmed Zaki Yamani,

consumers all over the world were suffering the fallout of a buying bonanza by hedge funds, who for the moment see the energy market as the best place to make a fast return.

By contrast, OPEC is doing its best to get prices down as it frets that spiraling energy costs could hurt global growth….

“Prices are already too high. There is additional supply available from OPEC — you will definitely see it,” he said.

Saudi Arabia has at least one million barrels per day of spare capacity above its current production of around 9.5 million bpd, giving the world supply system some slack, he said.

This is in sharp contrast to statements earlier this week by OPEC’s current president who said, “The oil price is very high, it’s crazy. There is no additional supply.”

In Thursday trading, on bad Yukos news and new skepticism about OPEC’s supply abilities, oil returned to record territory after a late-day slump on Wednesday. Stocks were hit by the oil news on Thursday as well, with the Dow taking a 1.6% bath.

Today could be another wild one. A refinery fire in Texas likely will cause a gasoline price spike. Meanwhile, crude is pushing $45.

The wild swinging of oil prices and rhetoric concerning the oil supply clearly has ramped up this summer. In the Bloomberg story linked above, a frenzied analyst is quoted:

“This market is a runaway freight train”, said David Aleman, managing director of Axis Trading Co. in Beverly Hills, California. “There are so many different stories and they all seem to be bullish. A lot has to do with fear of the unknown”.

All this is still seen by the vast majority of American citizens through the frame of entitlement to unlimited energy supplies. Boy will a lot of people be surprised when it becomes clear that limits have been reached.

Note: The new ASPO Newsletter for August is available. It contains a wealth of information and opinion about the larger world oil/gas situation.

Is the rubber hitting the road on world oil supply/demand balance?

OPEC managed to calm markets back in early June as Saudi Oil Minister Ali Naimi then told reporters, “We have decided to lift the ceiling to 25.5 (million barrels a day) effective July 1 and 26.0 (million barrels a day) effective Aug. 1 and we will meet to review future action on July 21 in Vienna”.

Also in early June, Iranian Oil Minister Bijan Namdar Zangeneh was quoted, “We believe there is not any shortage in the market and we should be very careful about the coming months”.

But yesterday another OPEC Minister, Indonesia’s Purnomo Yusgiantoro, who is also OPEC’s president, said, “The oil price is very high, it’s crazy. There is no additional supply”.

The same CNN story also refers to a Monday quote from Algerian Oil Minister Chakib Khelil,

the Organization of the Petroleum Exporting Countries had done all it could to stop this year’s oil price rally. “OPEC can do nothing,” Khelil told reporters in Algiers.

International oil prices have surged more than one-third since the end of 2003 as global demand has accelerated with robust economic growth, stretching world production almost to its limits.

Today, it’s “Another day, another oil record”, according to an early-day CNN story. But by the afternoon, stories started to contain calming language: Oil Slips from Record Highs.

I suspect that this story, “The death of cheap crude” on english.aljazeera.net sums up the truth of the situation:

As prices hit record highs, some analysts’ remarks, and much of the comment in the media, are directed at uncertainty surrounding Russian company Yukos, Iraqi pipeline attacks, Nigerian strikes and a forthcoming presidential referendum in Venezuela.

Yet behind the easy headlines, so called emerging economies such as China and India, added to rising American demand, are putting pressure on the price of energy. Meanwhile, major oil fields are withering, no new ones are being found and supplier countries are already pumping at their production limits….

Ali Bakhtiari, head of strategic planning at the Iranian National Oil Company (NIOC), dismisses the media chat, as just that.

“Cheap oil is dead. You are never going to see oil priced at $25 a barrel again. These high prices, yes, they are exacerbated by Yukos, Iraq and so on, but more importantly they are a sign that we have major structural problems with supply”, [Bakhtiari said].

I expect prices to ease into the fall ahead of the election. If that does not happen, then it’s really clear that the oil markets are beyond any significant influence of President Bush and his friend Saudi ambassador Prince Bandar bin Sultan.