Saudi Arabia may be curtailing production
Oleaginous Politics
By blackhedd Posted in Foreign Affairs — Comments (9) / Email this page » / Leave a comment »
This AP story has been gyrating every fifteen minutes or so over the last several hours along with crude prices. The important bit of the story is at the end. Saudi Arabia, counter my own expectations, appears to be holding to lower OPEC output targets announced last October.
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The surface-level story in global energy markets over the last ten days has been the weather in the US Northeast. First, global warming wreaked havoc by giving us far above-average temperatures in the oil-heating belt. Then, starting about a week ago, global warming similarly wreaked havoc by giving us some approximately normal mid-January temperatures. (Here in New York, we called it "the January freeze.") All of this has been given as the reason for a nearly 10% runup in the price of crude oil, from lows below $50 a barrel to just over $55 this morning.
It's important to note that prices have been quite volatile from day to day over the past week. I also noticed that the stock prices of downstream energy companies and integrateds seem to be tracking the hourly barrel price more closely than normal. The market is jittery and not quite sure where it wants to go, which often portends a strong move when it does finally decide.
As I said here, I expect the large participation by financial players in the energy markets to exaggerate price moves that are caused by fundamentals. And this volatility is probably permanent. If the hedgies have been playing the short side of the market, then the stage is set for an upward move in crude prices to turn into something pretty interesting.
And that's where politics may be entering the picture. In the above-linked story, I also pointed out that Saudi Arabia moved to cut the dollar-price of some of its crude-oil exports right after New Year's Day. This led me to speculate on the possibility that the Saudis are seeking to put economic pressure on Iran.
Hegemony by Iran over the Middle East would be a highly unnatural outcome, given the extremely low economic vitality of the Iranian nation. (In case you care what happens to Venezuela, it has to be said that Iran's economic decline dates from the inception of state control over the economy. You can blame Saddam Hussein too, if you want, but his war against Iran ended two decades ago, so that makes no sense.) If Iran becomes the regional hegemon in the ME, it will be solely as a result of nuclear weapons. The Saudis are deeply threatened by this along with everyone else, as Jeff details in this superb piece nearby.
The Iranian regime suffers deeply from drops in the price of oil (see my above-linked piece for more on that). I'm still buying the interpretation that weak oil prices are behind the recent lower levels of pugnacity from Ahmadinejad and company.
So read the bottom of the wire story I quoted at the top of this piece. Saudi appears to be holding their production cuts. Observations of tanker movements are being interpreted to mean that the Saudis shipped about one million fewer barrels a day in December than in the pre-October period. The official OPEC production targets drop by a further 500,000 barrels a day starting February 1. Keep your eyes on this.
If it turns out to be true that the Saudis are serious about supporting oil prices, it changes energy-market fundamentals in an important way. It also may mean that the Saudis have something else up their sleeve with regard to Iran. If you think you know what it is, I'd love to hear it in the comments.
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Saudi Arabia may be curtailing production 9 Comments (0 topical, 9 editorial, 0 hidden) Post a comment »
I'm hearing (but not good enough for attribution) that a lot of players around the world are putting the hurt on Iran. It's pretty good information (I saw news reports on this) that the US government has threatened unilateral sanctions against China if they go forward with their $16 billion North Fars gas project (which does appear to have stalled out of late). British Pete also seems to be stepping back from some of their Iranian projects. Italy's once-state-owned oil company has a lot of legacy projects in Iran that they're not upgrading. Clearly the Iranian regime is susceptible to shortfalls in export revenues.
To your point about high petroleum prices encouraging energy alternatives: the Saudis will keep prices low enough to forestall this outcome, to the degree that it's possible for them to do so. And to some degree, it is.
I'm hearing (but not good enough for attribution) that a lot of players around the world are putting the hurt on Iran.
Why? Is it just because the Iranians have convinced the world they're flat-out crazy, or is the US doing some trading behind the scenes? Because if the latter, than this is actually a very interesting example of the use of "soft power", that is, the ability to influence other nations without military confrontation. Interesting because (if so) it doesn't involve summits, grand treaties, the U.N., and all the trappings associated with "soft power" in the public mind.
they're not crazy. They want to be nuclear, and it's within their reach if they're not stopped. It's clear on its face that no one wants to live in a world in which Iran is nuclear-armed. (Even if Flyerhawk wants us to think he'd be cool if it happened.)
I agree with your assessment. "Hard" military power has been all-but ruled out by the American Left. The political and diplomatic "solutions" so beloved by the Davos crowd are just mental masturbation. At the same time, everyone that really matters in the world knows that Iran needs to be stopped.
because I don't know whether to identify it as a deliberate exercise of soft power or whether, as is perhaps more likely, it's simply the formation of a (gasp!) international consensus. Regardless, I think it's fascinating to see that, whether or not the tacit nudging of the US had anything to do with it, the decision of the international community to sanction Iran is taking place more or less completely outside the formalized mechanisms for doing so. Looking back at the state of treaties and international laws in the past decade or so, it's tempting to generalize and say that, at least for the time being, ad-hocracy is the way to go for effectiveness. Perhaps this is because the similarities that allow us to classify nation-states as such seem to be much weaker than their differences?
...arms all over the world.
To what degree does this represent "soft" power? Well, we're still the world's biggest customer, and the customer is always right. People who read me here probably think I'm in favor of increasing America's economic strength just because I'm a greedy capitalist pig. I certainly am that, of course, but now you can see that there is another dimension to the picture.
that they can have more years enjoying their pensions by appeasing Iran and their growing muslim populations in Europe, than if they joined the fight with the US against them?
"One man with courage makes a majority." - Andrew Jackson
The HinzSight Report
Race 4 2008
The fact that treaties, summits and the UN aren't involved certainly goes a long way toward explaining why it's working...
"The person who has nothing for which he is willing to fight, nothing which is more important than his own personal comfort... has no chance of being free unless made and kept so by the exertions of better men than himself."
--John Stuart Mill
may consider the Democrats to be more of an immediate threat than Iran. Hence, the price issue could be in response to non-binding resolutions (Dems and RHINOs), the recent cozying up to Iran (Kerry), trying to head off the President's preparation of a possible use of the military option against Iran, etc. In addition, the Saudis have expressed concern for the safety of the Iraqi Sunnis in the event of a hasty U.S. withdrawal from Iraq.
If the Saudi's can no longer depend on the US to press for political and military stability in the region, then letting prices rise makes a lot of sense.
I know, this begins to sound like blood for oil, but the fact is, the world economy is dependent on the flow of oil. Stability is a good thing. If the Democrats can force the US to abandon a meaningful deployment in the region, the Saudi's may interpret this as a need to protect themselves at the expense of the U.S.
On a local issue (U.S. internal), the long term effect will most likely be beneficial. If petroleum is too expensive, then the price for alternative fuels will rise as well. Investors will be willing to take a chance on infrastructure costs needed for the production of these fuels. Auto manufacturers will be more likely to include power systems that can use alternative fuels. The only downside is that the Dems will get what they want, but it will be the result of market forces, not the diktats of the Socialists.