Why Saudi Arabia Is Trying to Talk Down Oil Prices

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"The sooner energy consumers realize that the oil reserves are a scarce and depleting resource being carefully managed by producers like Saudi Arabia, the sooner energy consumers will look for different sources of energy. The Saudis don't want oil users looking for other suppliers."

The Daily Reckoning, Dan Denning

Why in the world is Saudi Oil Minister Ali Naimi talking down oil prices? If the Saudis wanted lower oil prices, wouldn't they just pump more oil instead of writing op-eds? Yet Naimi took the op-ed page of the Financial Times last week and wrote:
It is clear that sustained high prices are starting to take their toll on European economic growth targets. . .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.

Our sense is that the Saudis are worried about the persistently high oil price because it's a function of limited supply. If and when demand DOES rise, it will be revealed that the oil producers can't quickly increase supply.

The sooner energy consumers realise that the oil reserves are a scarce and depleting resource being carefully managed by producers like Saudi Arabia, the sooner energy consumers will look for different sources of energy. THAT is probably what Ali Naimi is worried about. The Saudis don't want oil users looking for other suppliers. They think talking down the price will prevent oil consumers from thinking about alternatives. . .View Full Article

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