The Price of Oil: Saudi Agenda, Our Gullibility

This opinion piece presents the opinions of the author.
It does not necessarily reflect the views of Rigzone.

The Price of Oil: Saudi Hypocrisy, Our Gullibility

One is compelled to pull out that old chestnut, "There he goes again." The face of Saudi oil, and de facto senior voice of the OPEC cartel, Saudi Oil Minister Ali Naimi entertained us to one of his seminal dissertations, expounding on Saudi Arabia's concerns for the well being of all mankind.

Stating the case clearly, that Saudi Arabia "... remains the world's largest producer and the country with the largest proven reserves, so it has a responsibility to do what it can to mitigate prices." No argument here.

Yet that bit of wisdom is prefaced by the oldest of canards, "Needless to say Saudi Arabia does not control the price: it sells its crude according to international prices." A truly bizarre declaration coming from the leading protagonist of the cartel, OPEC, whose primary function is to limit the supply of oil to world markets to control, and within the limits of the world's tolerance, to maximize the price of crude oil in the market place. Clearly their efforts have been so successful that the limits of tolerance have now been reached and letting off a little steam has become part of the ritual.

The ritual is encapsulated in the mantra repeated in Mr. Ali Naimi's pronouncement: "The bottom line is that Saudi Arabia would like to see a lower price . It would like to see a fair and reasonable price, that will not hurt the economic recovery, especially in emerging and developing countries...". A statement that automatically elicits our well inculcated and programmed hosannas whenever such mumblings come out of Riyadh.

The trouble is we have heard this babble before and now again. In December of 2008, with oil prices teetering below $40 a barrel and gasoline prices accordingly restrained, our now benevolent Saudi Oil Minister Al Naimi would pontificate, after King Abdullah himself had ventured that $75/bbl was a fair and reasonable price, enlightening us, "You must understand that the purpose of the $75 price is for a much more noble cause. You need every producer to produce, and marginal producers cannot produce at $40 a barrel." This coming from a producer whose "all inclusive" production costs veer toward "$1.50/bbl" or possibly less according to a pronouncement made by none other than Mr. Ali Naimi at the Houston Oil Forum in November 1999.

Well, several months after the December 2008 statement giving us the parameters of oil price 'nobility' the price touched and quickly breached Mr. Al Naimi's $75/bbl. As it went shooting on to $100/bbl and well beyond with barely a word of discomfiture coming from OPEC's or the Saudi Oil Ministry's headquarters.

As the price veered to $100 and higher the International Energy Agency had the presumption to criticize OPEC for holding back production only to be roundly reprimanded by OPEC's the Secretary General El-Badri blaming high prices on speculation and "technical means", whatever that means.

Speaking of speculation -- or worse, manipulation -- and given the lack of transparency in the trading of oil futures in the world's commodity markets, it would be interesting to hear from Mr. Ali Naimi whether the Saudi Oil Ministry, Aramco, the Saudi Sovereign Wealth Fund or whatever Saudi or OPEC designees are currently holding oil futures contracts and to what purpose. Certainly not to lower the price of oil?

Anyway, thank you Mr. Ali Naimi. Your sincerity and good deeds are appreciated.


Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

gordon dyck  |  April 22, 2012
in response to mikes comment of 4.02.12 re:saudis excess of 2000000 bbls of heavy sour oil.within the next year or so they will have a home for this when reliance energy starts their expanded refinery on the west coast of india.when it reaches full capacity it is estimated to be producing 5% of the world demand for gasoline daily.
Lerret  |  April 08, 2012
Frankly, Im with those who say the Saudi reserves are suspect. And put into perspective, the price of oil at $100/bbl is hardly over-priced considering the environmental impact, the benefit to the economy that it provides. 40 years ago I was making $1.15 an hour and giving 32.9¢ a gallon for gasoline. I make a heckuva lot more than $11.50 an hour and gasoline isnt much over $3.29 it is hardly overpriced especially considering my old Mercury got 14 mpg and my new crewcab pickup gets 19...
Bob Menage  |  April 07, 2012
read."twilight in the Desert" Simmonds...oil production in KSA...i have worked there on these fields and can fully endorse his findings...oil is cheap at the moment...your article seems short on facts
Andy  |  April 06, 2012
The question of our gullibility in believeing what the Saudis tell us about the oil price is trumped by our gullibility surrounding the proven reserves the Saudis claim. I would be interested in a debate on the legitimacy of their claim of 267 billion bbls.
Glenn Davis  |  April 06, 2012
It is refreshing to read any news article where the author fully understands and is willing to inform others about the hypocrisy and two-faced deviousness and lying that prevails in countries such as Saudi Arabia and their Gulf State associates. It always amazes me that leaders of Western Nations continue to support these countries and are unwilling to face up to the fact that the Gulf State dictators consider Western leaders as gullible idiots (with some justification) who they are very willing to screw at every opportunity. All the while, in holier than thou expressions, they justify their actions as merciful and beneficial to all mankind. However, as soon as some rogue state leader (e.g. Saddam Hussein) threatens them, who do they look towards for protection and savior from evil? And when the shooting stops, the Gulf State dictators gratitude is short lived. Hopefully, one day, the Western Leaders will smarten up and stop supporting these insincere dictators and supporters of Islamic Terrorists and wean themselves from Gulf State country oil. There are other supplies readily available (e.g. Canadian Oil Sands) which can easily offset dependency on Gulf State oil and be used to lower oil prices to a true, open market price level.
Mavrik  |  April 06, 2012
Frankly, I trust the Saudi government to drive sound energy policies more than I trust the US government!
Joe  |  April 06, 2012
If the US reserves are adequate (whatever that means), is this our way out of the National Debt - oil production?
Bob Hangguk  |  April 06, 2012
The US or Nato if they needs the excuse, attacks third world countries on the pretext of world peace. Coincidence? Nah, he probably learnt to think like you guys! Thanks a lot, US!
Matt Mason  |  April 03, 2012
If the commodities market wasnt there to help offset risk for E&P companies, the $1.50 marginal cost producer would be the only game in town- and you had better believe that the market price for oil would be MUCH higher than it is right now. The main ally of the low-cost producer is volatility in the market- the price would have to get quite low before it would be in any danger of a loss, and uncertainty due to volatilty, without any means of mitigating risk of loss would prevent new entrants into the market. When you have the only show in town, you run the town. Oil remains one of, if not the most, capital-intensive commodities to produce on this planet. While its easy to cast a spotlight on some of the more noxious of the effects of speculators on oil prices, its much harder (and politically unpalatable) to discuss the benefits. Certainly oil speculation has a hand in inflating the price of oil, particularly when volatility trends are high- however, it also makes it possible for the higher-cost producers to play in the market, driving prices down for everyone.
Andrew Nicolaou  |  April 03, 2012
This raises some very good points. I am very curious how far this manipulation has to escalate before an American policy change. Progress typically requires risk and always requires some pain. I wonder how many dollars the environmental "pain" is worth.
Mitchel  |  April 03, 2012
With western governments (i.e.: European Union) charging up to 250% of the real retail price of fuel in taxes, or 60% of the final price at the pump (as mass media like to glaze), it would be good to ask who is the one earning from the oil prices... The real problem is that today in the world of internet 2.0 it is really difficult to keep fooling the public...
Mark  |  April 02, 2012
Things have changed. The realities of physical resource limits are starting to be felt...even in Saudi Arabia. Saudi all in costs are no longer just $1.50/bbl. Ask yourself why did the Saudis just hire Transoceans worst drillship at a record dayrate to drill in deepwater? The Saudis no longer have the productive capacity to exert much control on prices at the upper limit. Secondly the Saudis have very high costs to maintain social order- something that is in our interests and these budgetary needs require higher oil prices than before- a plausible estimate is $75.
jonathan scott  |  April 02, 2012
Very interesting article!
WayneLLewis  |  April 02, 2012
Saudi Arabia has been a good business partner with the US. I might also add that it has recently been a very patient partner considering that the current US President works feverishly to eliminate oil as our main energy source.
allen  |  April 02, 2012
And to THINK that the Good ole USofA Elected a Muslium who had to Bow to the King of Saudi Arabia, When we have all this Oil. "All inclusive" at $1.50 bbl, his words not mine. This how you protect these rascals ? America better start growing a Pair of Balls before it is to late like DRILL Babe Drill all over develop everything asap. Thank You MR Preident
Rick Morgan  |  April 02, 2012
Too true, but in my humble opinion, the commodities market is equally to blame for $100+ oil, and $4.00 gasoline prices. Capitalism is based upon free market response to supply and demand. In today's markets, the free portion is questionable.
Mike  |  April 02, 2012
I might ask Mr. Learsy who he is trying to impress as Saudi Arabia clearly is producing wide open at the moment, along with the rest of the world, and the world seems to be soaking it all up like one big sponge. The Saudis no longer have the power to manipulate oil prices with less than 2 million sour, heavy barrels a day of excess capacity. Its a global economy and truly a global oil price.
THOMAS M. JONES  |  April 02, 2012
Clearly, he misses the big threat! Not from the Saudis but from our lovely friends (Communist) in China. Our great leader spoke with God Bush/Cheney and we invade Iraq destabalizing the markets into Saudis favor. The current mess is of for and by Bush/Cheney. We are being paid back with the current run in oil prices.