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Price of oil rises slightly above $100 a barrel

John Dimsdale Jan 18, 2012

Kai Ryssdal: Speaking of oil, as we are, prices have been on the rise of late. It’s due mostly to rumblings of a western boycott of Iranian oil and the reciprocal threat from Tehran of a blockade of the Persian Gulf and Strait of Hormuz.

Today, though, Saudi Arabia — the world’s biggest exporter of crude — promised to do what it takes to keep prices about where they are now, around $100 a barrel or so.

We asked Marketplace’s John Dimsdale to find out why.

John Dimsdale: The Saudis have reassured oil importing countries that even if they go ahead with a boycott of Iranian crude, their demand for fuel will be met and prices will stay stable.

Philip Verleger with the Peterson Institute for International Economics says it’s simple self-interest.

Philip Verleger:  Saudi Arabia is very aware excessively high petroleum prices will accelerate movement away from oil.  And they understand that a price spike that might be caused by some irrational Iranian action would hurt their long-run financial interest. 

Affordable oil benefits the U.S. economy too, encouraging growth while keeping inflation at bay. But is $100 a barrel affordable?  

Steve LeVine: This is not a great gift to the world. That’s a high oil price. 

Steve LeVine at the New America Foundation says the last time the Saudis pegged the price, it was $75 a barrel. He says the Saudi government needs more oil income, ever since the Arab Spring. 

LeVine: The Saudi king has thrown a bunch of social spending at his people to tamp down any possibility of an uprising. The estimate is the break even point for Saudi Arabia for that spending is around $85 to $90 a barrel oil.

LeVine says if Iranian tensions ease and Nigeria deals with its supply disruptions, oil prices could fall as much as $20 a barrel.

In Washington, I’m John Dimsdale for Marketplace.

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