|
London: What is the main driver behind Opec power Saudi Arabia's oil policy? This question is sweeping trading floors and it could be unanswerable.
Is it a desire to contain any potential threat from Iran or is it the kingdom's struggle to balance its own economic interests with those of top energy consumer the United States?
After prices fell through $60 a barrel last year, Opec swiftly agreed two output cuts, totalling 1.7 million barrels per day (bpd), or six per cent of group output.
But as oil hovers above $50 - 35 per cent below a record $78.40 struck last July - Venezuela has so far been alone in calling for further supply restraint.
Saudi Oil Minister Ali Al Naimi on Tuesday told oil traders not to panic and said there was no need for further action. These comments from the world's top oil exporter helped to push prices more than a dollar lower.
"The Saudis are leaving the Iranian issue open to speculation," an oil industry insider said.
"It's a convenient time to be ambivalent."
Officials from Sunni-ruled Saudi Arabia have spoken out against the possibility of Iran's Shi'ite government acquiring nuclear weapons and Tehran's influence in Shi'ite dominated Iraq. Iran insists its nuclear programme is for peaceful purposes but this has failed to convince world powers.
Oil policy in the conservative kingdom is formulated by the royal family and enforced by the oil minister.
Al Naimi has scrupulously avoided combining oil and politics within the Organisation of Petroleum Exporting Countries.
"Saudi Arabia does not mix oil and foreign policy and cannot afford to," said Sadad Hussaini, a former top executive at state oil company Saudi Aramco.
"With oil prices coming down so much, it would only be self-inflicted punishment."
To balance its budget, analysts say Riyadh needs US crude near the $50 a barrel mark currently in jeopardy.
But lower prices could deal a bigger blow to fellow Opec member Iran, which has proposed its budget based on $45 a barrel for its crude, the equivalent of roughly $51 for US oil.
It is also pumping only 3.8 million bpd - less than half as much as Saudi Arabia.
"I think there's an Iranian ingredient. The Saudis certainly don't want to gratify the Iranians and give them more money to spend on what they like," said one former diplomat involved in the Gulf.
Saudi Arabia's budget is being stretched by increased spending on anything from education to fighter jets.
"With spending rising about 20 per cent a year, Riyadh is only a few years away from needing US oil at $50-$60 oil to meet its spending requirements," said Brad Bourland, chief economist at Riyadh-based Samba Financial Group.
"The kingdom's budget projections for 2007 can be met with an average Arab Light price of around $42 a barrel, or roughly $47 for US crude."
Saudi Central Bank Governor Hamas Saud Al Sayyari said on January 7, when US crude was around $56, a further fall could cause problems for the kingdom's economy.
Al Naimi has taken pains to avoid setting any price target and has repeatedly said the goal is bring stable prices to the benefit of both producers and consumers.
|
