Saudi Concerns About High Oil Prices Signals Potential OPEC Move
by Win Thin
Saudi Oil Minister Al-Naimi said that crude oil prices between $70-80 per barrel are “appropriate.” OPEC Secretary-General el-Badri said his group would add oil output in the event of any supply disruptions, pledging action if supply were to be reduced by 1 mln bbl/day or more. Note that OPEC last changed its official quotas at the end of 2008 in response to the huge drop in oil prices that came as a result of the financial crisis. Quota cuts totaling almost 5 mln bbl/day were announced in Q4 08, but have inexplicably remained there even as the global economy recovered. Instead, OPEC has simply tolerated (and perhaps encouraged) quota cheating that in January was an estimated 8.1% over quotas for OPEC. If oil prices remains elevated due to the crisis in Egypt, we think that OPEC will have no choice but to increase quotas. Saudi comments today certainly signal concern that oil prices are rising enough to endanger the global recovery. Last OPEC meeting was in Ecuador back in December, and though another “Ordinary” meeting is not scheduled until June in Vienna, higher oil prices are likely to lead to an “Extraordinary” meeting before that.
Interestingly, Kazakh President Nazarbayev today canceled a referendum that would have allowed him to continue his term until 2020 and then called snap elections. Given that the opposition there has been marginalized, he has ruled since 1989 and is widely expected to win. However, recent developments in Egypt certainly underscore the fact that oil prices may remain high near-term due to increased political risk in the major oil-producing countries and regions. Protests have picked up in Yemen this past week, and there is potential for political uncertainty to spread further to other oil producers as well. Leaders in other Middle Eastern countries have certainly taken note of contagion risks. Why else would Yemen have announced that 500,000 families be added to its Social Security program and ordered the creation of a fund to support university graduates with jobs? Or why would Syrian President al-Assad acknowledged that political reforms are needed in his country?