Saudi To Increase Production

[Dr. Shane]

Plan Would Lift Saudi Oil Output

Saudi Arabia, the world’s biggest oil exporter, is planning to increase its output next month by about a half-million barrels a day, according to analysts and oil traders who have been briefed by Saudi officials.

The increase could bring Saudi output to a production level of 10 million barrels a day, which, if sustained, would be the kingdom’s highest ever. The move was seen as a sign that the Saudis are becoming increasingly nervous about both the political and economic effect of high oil prices. In recent weeks, soaring fuel costs have incited demonstrations and protests from Italy to Indonesia...

While they are reaping record profits, the Saudis are concerned that today’s record prices might eventually damp economic growth and lead to lower oil demand, as is already happening in the United States and other developed countries. The current prices are also making alternative fuels more viable, threatening the long-term prospects of the oil-based economy.

President Bush visited Saudi Arabia twice this year, pleading with King Abdullah to step up production. While the Saudis resisted the calls then, arguing that the markets were well supplied, they seem to have since concluded that they needed to disrupt the momentum that has been building in commodity markets, sending prices higher...

Oil prices fell on Friday, slipping $1.88 to settle at $134.86 a barrel on the New York Mercantile Exchange, after reports of the prospective Saudi increase trickled into the market...

While the meeting is not expected to achieve anything tangible, Saudi officials hope that tackling the issue publicly will break the upward momentum that is dominating oil markets.

A couple things are interesting to me in this report.

1. Oil producing nations are admitting they are concerned about the world moving away from an oil-based economy.

2. The high price of oil is being driven by speculation. Just the announcement of more output has caused the price of oil to drop slightly.

If the US were to announce it would open up Anwar and off-shore areas for new drilling and that it was going to start a coal-to-oil program, just the announcement would cause the price of oil to fall because so much of the price is driven by speculation.

That said, the high price of oil is driving alternative fuels like electric cars driven by air and batteries as well as hybrids. If the price of oil does drop significantly, will these alternative fuels still be desirable by the market?

[blue text taken from link. Emphasis add]

[Dr. Shane]

Saudi King: 'We will pump more oil'

Next month, the Saudis will be pumping an extra half-a-million barrels of oil a day compared to last month, bringing total Saudi production to 9.7 million barrels a day, their highest ever level. But the world's biggest oil exporters are coupling the increase with an appeal to western Europe to cut fuel taxes to lower the price of petrol to consumers.

Saudi Arabia, which has called an emergency meeting of oil producers and consumers in the port city Jeddah next Sunday, says the energy crisis has not been caused purely by market pressures but by a speculative bubble. Saudi Arabia and Opec believe there are no shortages to justify the sudden surge in prices.

[Text taken from link. Emphasis added]

[Bravus]

Hmm, maybe it's time to jump out of my oil shares...

On the other hand, lately the pattern has been 'prices rise, shares drop', the opposite of the usual. It's because prices have got high enough that people think it will slow the economy and reduce demand. So it's possible that if prices drop shares will rise... but I might put a hedge in place, just in case.