Thursday, August 12, 2004

According to Nawaf Obaid, Director of the Center for Saudi Studies, you can kiss $30/barrel oil goodbye.
the grand design for a return to 30 dollars a barrel is hardly taken seriously by specialists . . . For technical reasons, the mobilization of surplus [Saudi] capacity can take up to eighteen months. Furthermore, the additional quantities produced are heavy crude whose strong sulfur content makes them undesirable to American refineries and are subjected to stringent emissions standards. Finally, investors fear new large-scale terrorist attacks in the Saudi "Black Gold Triangle" on the Persian Gulf. The "security" factor has had a direct impact of $4 on the price of a barrel.
Two observations:

First, note that the 'not serious' price of $30/barrel is still well above last year's stated OPEC price band of $22-$28/barrel, a price band which has still not be officially discarded.

Second, I am surprised Obaid puts the "security risk factor" at only $4/barrel. If he is right, then it is really the forces of supply and demand, not terrorism, which are driving oil prices to post-Gulf War I records. Of course, what would "the fundamentals" be without the speculation inherent in a world ruled by finance capital?
"The current period lends itself perfectly to financial adventurism," underlines one trader. After having left the market briefly in the spring due to profit-taking, the speculators are back, taking part in the price inflation. The shortage is lasting, that is their leitmotiv. Indeed, despite the price rise, the oil companies have reduced their budgets for exploration and production. The pressures of institutional investors privileging the creation of shareholder value push the black gold majors to privilege share buy-backs or dividend distribution to the detriment of investment.

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