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RE: Saudi’s Output “slash”

April 19, 2011

I think that this release by the Saudi’s saying they are going to cut oil output is interesting for a few reasons. Its well known that often when there are oil supply problems or possible disruptions the Saudi’s come out and say that they will “increase oil output”. If you look at a chart of the resulting increase it typically amounts to “0” meaning the Saudi’s either won’t or can’t increase their productivity.

Case and point, last month with the Libya/Egypt issues the Saudi’s said they will “increase output to make up for Libyan production”. Well, as evidenced here that was BS. What makes this even more interesting is now the Saudi’s come out and say “there is too much oil, we are cutting production.” Now did they do that because it helps them saving face from last month when it was obvious they couldnt/didnt raise production?

They do make a note that the market is oversupplied, which is actually very true. There is “no more storage space” for WTI. There also has to be a significant decrease in demand from Japan. Then, today the Saudi Oil Mister remarked that the oil price is too high and driven by speculation (I agree). Are they concerned about demand which they really see shrinking? Quite a possibility.

The other reason (outside of demand concerns) is obviously politics.

The Saudi’s have been at odds with the US over the last several months over several issues mainly the US causing problems in the middle east. These problems all threaten the Saudi kingdom (example bahrain). As a result the Saudis have been displaying closer ties to the BRIC team, which is obviously anti-US. I think “speculation” is widely seen as western-supplied, meaning that the US and Europe are the ones driving prices artificially high and is a shot at the west.

To me, this is a major sign that the Saudi’s are continuing to severe ties with the US. This will lead to some very interesting developments in the weeks to come.

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