Bob Tippee
Editor
These thoughts might have occurred to Saudi Arabia's King Abdullah when US President George W. Bush, during a visit to the desert kingdom, requested an increase in oil production:
1. The world leader who famously described his country as "addicted to oil," and who thus turned US energy discourse into a riot of wishful thinking, now asks for more oil.
2. Less than a month ago, while signing a US energy bill that does nothing to boost oil supply, Bush said, "One of the most serious long-term challenges facing our country is dependence on oil, especially oil from foreign lands." Yet here he is, asking a foreign land for more oil.
3. It's bizarre for Bush to seek more foreign oil on behalf of a country that leads the world in oil use yet refuses, with leasing and other restrictions, to produce all it can domestically.
4. Yes, Saudi Arabia can produce more oil—but to what purpose? It has committed to holding 1.5 million b/d in reserve to meet demand surges. According to the International Energy Agency, the kingdom has 250,000 b/d more spare production capacity than that. Although the oil, if produced, would be heavy, sour crude not greatly in demand, the increment could ease pressure on inventories. But it also would trim total spare capacity among members of the Organization of Petroleum Exporting Countries, excluding Iraq, to 2.43 million b/d. That's barely enough to cover the sudden loss of supply from hotspots like Nigeria and Venezuela. Oil traders know this. A production increase of the likely amount thus might not lower oil prices much and might even have the opposite effect. Any larger output hike, one that shrunk the 1.5 million b/d Saudi cushion, would legitimately spook the market.
5. How does Saudi Arabia respond to this tangle of contradiction? There's only one constructive approach. Acknowledge that Bush's appeal reflects an incendiary and ill-informed political climate, for which Bush himself deserves only part of the blame. Then answer with an obviously needed reminder that, with oil no less than with any other commodity, everything depends on the market.
(Online Jan. 18, 2008; author's e-mail: [email protected])