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Will more Saudi oil help at the pump?

Bob Moon Jun 17, 2008

Will more Saudi oil help at the pump?

Bob Moon Jun 17, 2008


Kai Ryssdal: A barrel of crude closed at $134 and a penny this afternoon, so it looks like energy-based inflation’s going to be with us for a while.

Saudi Arabia, the world’s largest oil producer, seems to be trying to stop runaway crude prices, but some fear we might all get run over in the process.

Here’s our Senior Business Correspondent Bob Moon.

Bob Moon: This ought to be good news: An urgent move by the Saudis to hike their crude oil output ahead of a key summit of producing and consuming nations this weekend.

John Kilduff is senior vice president for energy at MF Global in New York.

John Kilduff: At this point, it looks like they are in the process of laying on the market about 300,000 barrels a day of more oil in the very near future.

So why isn’t this man smiling? Increased supply should put downward pressure on prices, but Kilduff points out they’ve just kept on climbing, even though the Saudis have already added another 200,000 barrels to their production recently. Now there’s a risk that this latest move might just trigger more uncertainty and more volatility.

Kilduff: The whole idea of this is somewhat unnerving because we’re literally down to our last bullets here in terms of trying to battle these high prices and if this doesn’t work, we really will not have any place else to turn in terms of there being more production.

Private energy analyst Stephen Schork agrees. He runs the research firm Energy Market Intelligence.

Stephen Schork: My fear is that the Saudis have been telling us for 10 months that the rise in crude oil has nothing to do with the availability of crude oil. So what good is a gesture of putting more barrels onto the market if you’ve been telling the market all along it’s not a supply issue to begin with?

Indeed, the Saudis have been saying no one’s really clamoring for oil. At Newedge USA, energy analyst Antoine Halff says that’s because it’s too expensive, so the Saudis will also need to start discounting their oil if they hope to make a difference with their increased output.

Antoine Halff: The other difficulty in bringing more oil to the market is getting consumers, buyers, to agree to buy it.

The biggest problem though, as analyst Stephen Schork sees it, is something the Saudis can’t control as much as officials in Washington.

Schork: We have to give the market and the traders who have been selling dollars and buying crude oil since last August an excuse to buy back those dollars and sell off that crude oil.

Schork says a stronger dollar is the quickest way to burst the speculation bubble.

In Los Angeles, I’m Bob Moon for Marketplace.

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