Hi Reid,
Thanks for that story. I saw another story about the Saudi reserves, which at 261 billion barrels are the largest in the world. The oil minister is predicting that with anticipated improvements in extraction techniques and results of new exploration, that within a few years or so those reserves may dramatically increase by about 200 billion barrels to total 461 billion barrels.
I think the timing of these statements, and the fact that he made them at all, was no coincidence. I think it is part of an effort to decrease oil price volatility, which in part arises because of real or imagined concerns about supplies.
In the same breath, the Saudi minister went on to say that the Saudis are committed to facilitating supplies AND maintaining a "stable" market.
Together with increasing OPEC grumblings over the past month or two, I interpret that to mean that OPEC is much more concerned with the drop in oil prices and also their volatility, and will begin a concerted effort to manage quotas more tightly to maintain high prices in as stable a fashion as possible.
Further drops in oil prices will tend to strengthen that resolve, I think. Consider how much money some of these countries have lost today alone: oil has dropped dramatically today, currently trading at about $42.65/barrel, down $2.43/barrel on the session.
Increases in supply alone will improve, but will not completely resolve the issue. OPEC is in the business of ensuring profits for its member nation. Quite understandably, they will do whatever they can to prop up prices. The volatility is much less in their control, since it is mostly due to geopolitical concerns exacerbated by speculative trading (the oil markets have their own mo-mo crowd!).
I suspect that OPEC has intentionally refrained from stopping the drop in prices in order to allow that increased volatility to dissipate. Then, I think they will increasingly institute policies that will tend to support stable but high oil prices. I don't think they will stand by and watch prices drop for very much longer.
For some reason, the stock markets don't seem to be reacting positively to any of this so far.
T |
