Saudi Oil Moves: A Drop in the Bucket?
NEW YORK (TheStreet) -- Saudi Arabia is doing everything it can to cool an overheated crude oil market. But the verdict has yet to come in on whether the Saudis will be able single-handedly to drop energy and gas prices for everyone.
In response to increasing geopolitical risks from Iran and in other oil-producing regions in the Middle East, the Saudis have made some stunning moves to try to lower oil prices on the global marketplace.
First, they have ramped up their own production to an eye-opening 10 million barrels a day, more than they have pumped in more than 30 years.They have been storing excess capacity in Rotterdam and elsewhere in Europe to make it quickly accessible to the most sensitive markets. They have contracted a new fleet of supertankers to fill and transport more than 20 million barrels of oil to the Gulf Coast of the United States. Eleven VFCCs (very large crude carriers) were contracted in the last week by the Saudis, in comparison to 2011 when the Saudis contracted only six for the year. The Saudis have also begun to reopen oil production areas that haven't been tapped since 1980. This return to older oil fields won't have an immediate production effect, but it underscores the desire of the Saudis to develop even more spare capacity than they already have. This deluge of oil that's about to hit the global market is designed to have one effect: to lower crude oil prices. But it is still not clear whether it will accomplish that long-term goal. After all the Saudis have tried this before, in 2006, but the markets were only temporarily impressed by the increased production before they resumed their march to an ultimate high price of $147 a barrel in July of 2008. Indeed, it's tough for me to see what these 11 supertankers will do once they reach the Gulf Coast here in the U.S., because there is already a steady supply of crude to the refineries there, and we have been a net exporter of gasoline for the last several months and for the first time in our history.
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