Saudi minister calls low oil prices unsustainable

[peejay 327]

Saudi minister calls low oil prices unsustainable

By LYNN COOK

2009 Houston Chronicle

Feb. 10, 2009, 8:32PM

Saudi Arabia’s oil minister told a packed dinner audience tonight that he has no doubt speculative investors pushed the price of oil into triple digits last year with “bullish market psychology.”

Now that the market’s “group-think” has done a 180-degree turn, overly pessimistic views are keeping oil prices depressed, Ali Ibrahim al-Naimi, minister of petroleum and mineral resources, said in a keynote speech at Cambridge Energy Associates’ CERAWeek conference in Houston.

“From a fundamental viewpoint, prices will be just as unsustainable at these low levels as they were at the stratospherically high levels experienced last year,” he said in prepared text released as the speech began.

The volatility of energy markets in recent years has often obscured market signals, leaving some unsure when to conserve energy, when to invest. Without price stability, al-Naimi warned, “achieving global economic recovery will be significantly more difficult.”

Saudi Arabia has a goal of keeping spare production capacity at 1.5 million to 2 million barrels of oil per day to help stabilize prices, al-Naimi said. That cushion is expected to swell to 4.5 million by mid-year when the 1.2 million barrel-a-day project in Khurais comes online.

The Saudi energy minister’s comments captured a common theme at the conference, that energy markets are in limbo.

“The unprecedented price volatility in conjunction with the complexity, breadth and the pace of the collapse of the financial system crashed over us like an economic tsunami, ripping us from our intellectual and experiential moorings, leaving many confused and uncertain about the way forward,” he said.

“The recent past was all about high risk and high returns. The present focus is on stability and survival.”

Al-Naimi did not give a specific price range where he thinks oil should be traded, but said crude prices have to achieve a balance—low enough to be accessible to lower-income developing countries that need it to gain economic ground while high enough to encourage conservation and spur development of unconventional resources.

“While there may be no consensus on what is a fair price for a barrel of oil, I think that we all can agree that the volatility of oil prices over the past year was detrimental to the interests of oil producers, consumers and the industry alike,” he said.

Al-Naimi predicted climate change and the geopolitics surrounding it will prove an even bigger driver of energy markets and policy than the economic crisis. He warned that a reactionary move toward protectionism and over-regulation could create a chilling effect on energy investment, but said governments pushing too hard for alternatives when it is still unknown which will be the most efficient and economic would have more dire effects.

“A nightmare scenario would be created if alternative energy supplies fail to meet overly optimistic expectations while traditional energy suppliers scale back investment due to expectations of declining demand for their products,” he said.

http://www.chron.com/disp/story.mpl/business/6257076.html

[Saddle Bronc 124]

Unlike 1973, US share of oil imports/consumption has declined (and Muddle East's share of the supply pie also has declined appreciably since 2006 and is set to do so further) to other large-total-economy (by sheer population size) countries such as China (in 1973 it was a net exporter, now no way) and India; also, erstwhile OPEC-member Indonesia (212 million population) now must import oil for domestic use.

Basically, demand for kerosene (cook-fuel, air transport, some industrial uses) and diesel (road/rail transport) from these countries will certainly increase.

[Nagishkaw 510]

Taking little girls as brides is “bullish market psychology” .

Edited February 12, 2009 by Nagishkaw

[Jasman0717 8]

F the Saudi minister

[I AM NOT THAT GUY 5,715]

So, I guess this means they will not be building that island in the Gulf of Bahrain any more?

[GiGii 4]

Dear Saudi Minister,

We have a global financial crisis going on here. Thanks for noticing you are suffering too. We are now a poor country, where do we sign up for oil aid?

[mawilson 2,133]

... overly pessimistic views are keeping oil prices depressed, Ali Ibrahim al-Naimi said

Not really. Demand is falling faster than OPEC and other producers can cut back.

Also not enough storage. Today's oil futures contracts:

March delivery: $35.45

April delivery: $42.47

If traders had somewhere to store oil for a month, they would go long March, short April

and make a guaranteed profit of $7.02 = $42.47-$35.45 per barrel.

[Nagishkaw 510]

Great

[spookyturtle 9,465]

F the Saudi minister

Amen.

[NickD 202]

Didn't think oil storage was the problem, but cash storage from what we had to pay these last few years.

[Jasman0717 8]

Didn't think oil storage was the problem, but cash storage from what we had to pay these last few years.

Yea, where did they store all that wind-fall profit taking I bet it was more than 879 billion

[Saddle Bronc 124]

... overly pessimistic views are keeping oil prices depressed, Ali Ibrahim al-Naimi said

Not really. Demand is falling faster than OPEC and other producers can cut back.

But there is a bottom-level demand which the West will reach--and where the increase in demand from Indonesia, India and China will takeover.

Also not enough storage. Today's oil futures contracts:

March delivery: $35.45

April delivery: $42.47

If traders had somewhere to store oil for a month, they would go long March, short April

and make a guaranteed profit of $7.02 = $42.47-$35.45 per barrel.