Saudi response: Keep downward pressure on oil prices?
Bloomberg reports today that Saudi Arabia is increasing oil production:
Bloomberg) — Saudi Arabia is boosting oil production, pursuing its policy to maintain market share as prices fall. Crude oil output is about 10 million barrels a day, New
York-based Pira Energy Group said in a weekly report, citing discussions with Saudi customers. That would be the highest since July and up from an average of 9.7 million barrels a day in the second half of 2014, according to data from the Joint Organisations Data Initiative, an industry group supervised by the Riyadh-based International Energy Forum.
Saudi Arabia’s interest in lower oil prices stemmed from its alarm at a prospective “strategic partnership” between Washington and Tehran. That is precisely what the US administration has in mind, as former Bush NSC official Michael Doran complained in a widely-read essay (Doran is right about Obama, but neglects to add that Condileeza Rice and Robert Gates advanced the same idea during the Bush Administration). Giving Iran a seat at the table and acknowledging its regional sphere of influence, Obama believes, is the key to stabilizing the region. There are several reports circulating that an agreement with Iran is imminent. It appears likely that both China and Russia have hastened to upgrade their ties with Iran in order to counter American policy. From Riyadh’s perspective, the apparent bidding war for Iran’s good graces prejudice its security.
Lower oil prices did double duty for KSA, by interrupting America’s move towards energy independence (and increasing its dependence on the Persian Gulf), and undercutting Iran. A fortiori, we should expect the Saudis to pursue this approach all the more aggressively now that the Obama administration appears to be on the verge of a deal with Iran.
The turnaround in oil prices during the past 18 hours, moreover, may be related to saturation of oil storage capacity in Asia. China’s oil imports dropped in January after a sharp rise in December.