Source: The Financial Times Limited
High international oil prices are bad news. Bad for Europe, bad for the US, bad for emerging economies and bad for the world’s poorest nations. A period of prolonged high prices is bad for all oil producing nations, including Saudi Arabia, and they are bad news for the energy industry more widely.
It is clear that sustained high prices are starting to take their toll on European economic growth targets. They are contributing to trade balance deficits and feeding inflationary pressures. It is an unsatisfactory situation and one Saudi Arabia is keen to help address. In an interconnected world, European economic growth is in our national interest. No one benefits from a stagnating European economy and we want to do what we can to help encourage growth. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email email@example.com to buy additional rights. http://www.ft.com/cms/s/0/9e1ccb48-781c-11e1-b237-00144feab49a.html#ixzz1qSwpycjq
Needless to say, Saudi Arabia does not control the price; it sells its crude oil according to international prices. But it remains the world’s largest producer, and the country with the greatest proven reserves, so it has a responsibility to do what it can to mitigate prices.
The bottom line is that Saudi Arabia would like to see a lower price. It would like to see a fair and reasonable price that will not hurt the global economic recovery, especially in emerging and developing countries, that will generate a good return for producing nations, and that will attract greater investment in the oil industry.
It is clear that geopolitical tensions in the region, and concerns over supply, are helping to keep prices high.
Yet fundamentally the market remains balanced. It is the perceived potential shortage of oil keeping prices high – not the reality on the ground. There is no lack of supply. There is no demand which cannot be met. Total commercial stocks for OECD nations are within target, and there is at least 57 days forward cover, enough to handle almost any eventuality.
So what can Saudi Arabia actually do?
We want to correct the myth that there is, or could be, a shortage. It is an irrational fear, a fear without basis. Saudi Arabia’s current capacity is 12.5m barrels per day, way beyond current levels demanded, and a reliable buffer against any temporary loss of production. Saudi Arabia has invested a great deal to sustain its capacity, and it will usespare production capacity to supply the oil market with any additional required volumes.
This is not empty rhetoric. We have proved to be a reliable supplier many times in the past. We increased production following the invasion of Iraq. We increased production following a workers’ strike in Venezuela in 2002. We stepped in following a surge in demand from emerging economies, specifically China, in 2004. We increased supplies to the US in the wake of Hurricane Katrina. And when a popular uprising swept through Libya in early 2011, we stepped up production to offset any losses.
We have done it many times before, we will do it again.
The other, sometimes overlooked, fact is that Saudi Arabia’s crude oil is suitable, and acceptable, for most global refineries. We are also uniquely capable of supplying volume when and where it is needed thanks to multiple delivery points, our strong marketing capabilities and ample storage – inside the Kingdom and in other parts of the world, especially the Mediterranean, northern Europe and Asia.
For the record, as things stand today, our inventories in Saudi Arabia and around the world are full. Our Rotterdam inventory is full, our Sidi Kerir facility is full, our Okinawa facility is full – 100 per cent full.
It should also be noted how other Opec members, such as Libya, Iraq and Angola, have also taken positive strides forward in increasing output and they are well poised for further advances. If you look towards Canada and the US, these nations are increasing oil production this year and beyond, and further supplies are being contributed from Russia, South America, Kazakhstan and Azerbaijan.
So the story is one of plenty. Supply is not the problem, and it has not been a problem in the recent past. There is no rational reason why oil prices are continuing to remain at these high levels.
I hope by speaking out on the issue that our intentions – and capabilities – are clear. We want to see stronger European growth and realise that reasonable crude oil prices are key to this.
Over the past 200 years, oil has powered incredible, and unprecedented, economic and social progress in Europe and the wider world. It has transformed our lives and will continue to power the global economy for many decades to come. It will only do so if prices reach a more reasonable level – so it is in all our interests to do what we can to achieve this aim.