The oil market is like a poker table. Hedge funds, investment banks, Big Oil, dictators, sheikhs, speculators and western politicians – everyone tries to get the other players’ money.
Ali al-Naimi, Saudi oil minister, told journalists that current oil prices are too high. He took measures to bring the prices down. Saudi production is currently at 10 mb/d, the Saudis will ship 22 VLCC (Very Large Crude Carriers) to the US. The usual number of these shipments to the US is one ship every two months. So the FT described this as “a wall of oil” moving towards the US Gulf coast.
So we know what the Saudis are up to.
President Obama is under pressure from the Republicans as prices for gas are surging in the US. The Republicans blame him for that.
Japan has shut down almost its entire nuclear capacity after the Fukushima incident and is currently burning oil and gas to generate enough electricity. Power producer Tepco recently raised its prices by 17 percent.
France and the UK are also suffering, the UK from its austerity and France from a lack of competitiveness and the Eurozone crisis.
All four countries would do better with lower oil prices. Furthermore, Obama and Sarkozy are facing reelection this year. Their card is the Strategic Petroleum Reserve of the IEA, nearly half of it located in the US. They have every reason to play it, they played it last year and they coordinated their game last year with the Saudis.
Just remember last year’s summer OPEC meeting: The Saudis pressed for higher production quotas in order to bring prices down. Iran and Venezuela rejected this idea. Soon after this event the strategic oil reserves were released. The IEA just waited for the outcome of OPEC´s meeting and acted as planned and coordinated with the Saudis before this meeting.
Let´s face it; prices will come down during the second quarter of 2012. Demand is lower in the second quarter compared to the first quarter. The Saudis ramped up production and are busily shipping lots of oil to the US and into its storage facilities. The US, UK, France and Japan are considering to release oil reserves.
Either prices will go down due to lower demand or prices will go down due to the release of oil reserves.
What about the timing? The phasing in of the sanctions against Iran in July would be the right moment to do it. It may even happen earlier.
The second and decisive round of voting in France takes place on May 6. Sarkozy needs the oil reserve before this date in order to win the election.
So what should the oil bulls do right now? Either become are bear or simply wait; President Obama will make oil cheaper and that´s what this game is all about, buy it cheap, sell it high and walk away with a handsome profit.
“Saudis deluge US with oil to curb price”, FT, 20 March 2012.
“The Quest – Energy, Security and the Remaking of the Modern World”, Daniel Yergin, 2011, p.271-275.