The Saudis co-operate!

Last week I wrote an article titled "Is the global economic world order changing?" towards the end I also commented on the global oil situation.

Here's what I had written :

"The USA has big problems domestically. Falling housing prices being a major problem. Are consumers in USA tightening their belts? Very likely. But what are the reasons? Rising oil prices would be one of them.

But you see, these are the problems the US has. But what about Asia? Asia has only one problem. Inflation. Oil and food prices. And this is common to the USA. What should the US do to tackle inflation? Slow the economy? Well it's already in recession according to most people! Yet oil prices are at a record! Where's the demand? Answer Asia.

So either the USA sabotages the rest of the world and causes a massive global economic slowdown by deciding to let the US go into a long and severe recession thus causing a massive crash in oil prices or OPEC gives in and do their part to keep inflation under control thus allowing everyone to prosper together.

If you were Saudi Arabia and you were faced with these two options which would you choose?

I believe the world is more linked these days and willing to work in concert to solve problems."

Yesterday after a meeting between President Bush and Saudi King Abdullah, the oil producing nation announced that they will raise output by 300,000 barrels a day, or 3.3 percent, to 9.45 million barrels a day in June.

Exactly as I had envisioned.

I would like to analyze a bit more into certain key points in the report from bloomberg :

``I don't think there is a need for more oil'' from OPEC, Qatari Oil Minister Abdullah al-Attiyah said in a telephone interview. ``My customers aren't asking for more oil.''

The Qatari minister said recent reports from the International Energy Agency have shown reductions in demand forecasts and added that there is ``no need'' for OPEC to meet before its next scheduled conference on Sept. 9.

There is indeed no need for more oil at this point in time. It's not a matter of an oil shortage. But it's just that oil prices are just too high at the moment. Although customers aren't asking for more oil, if the oil prices continue to be this high, global economic growth will slow tremendously and in the future not only will customers not be asking for more oil, they might be asking for less!

He declined to comment on Saudi Arabia's statement, saying it was a ``sovereign'' decision.

``This is good news for world oil markets and good news for President Bush, who appears to have used his personal relationship with King Abdullah to overcome Saudi reluctance to raise oil production and put downward pressure on world oil prices,'' said Jim Phillips, a Middle East analyst at the Heritage Foundation in Washington.

Saudi Arabia leads the way and President Bush has accomplished his mission.

Saudi Arabia plans to boost oil production capacity to 12.5 million barrels a day by 2009, Naimi said, reiterating previous comments.

With yesterday's announcement, oil production in Saudi Arabia will be 9.45 million barrels a day from June 2008. If they hold true to their word, an increase to 12.5 million barrels a day by 2009 represents an increase of 32% from the levels in June 2008.

Goldman Sachs sees oil trading between US$107 to US$141 in the 2nd half of 2008. I personally see this as Goldman Sachs endorsement that the global economy will be robust enough to sustain oil prices above US$100. This bodes well for the markets in general.