Cui bono is a Latin adage that tells us to seek who it is that benefits from some action. An editorial in Saudi Gazette talks about recent media reporting on a reduction in Saudi Arabia’s oil production that alleges that the Kingdom is trying to jack up oil prices. Rather than the Kingdom as the actor, the editorial suggests that it’s those who play the oil market who are responsible.
Saudi Arabia has historically been among the “oil doves”, those oil producing states that prefer to see lower oil prices, in opposition to the “oil hawks” who seek the highest price. Now, though, oil traders are playing a bigger role in setting oil prices than the producers, the piece says. Even small trades in the oil futures markets can have a profound effect on the prices across the entire market. The piece is at least worth consideration; it certainly supports the Saudi government’s concerns about the power of the oil speculators.
When it was first revealed that Saudi Arabia’s oil production last December had dropped by some 700,000 barrels per day to nine million bpd, the reaction of some international commentators was that it was an attempt by the Kingdom to ensure that the price of oil stayed above $100 a barrel.
It has now become clear that a fall in seasonal demand was actually responsible for the cut in output. This may sound counterintuitive, since it is during the winter in the northern hemisphere that liftings of oil have generally increased. Analysts admit that they still have not figured out why underlying demand appears to have dropped, over and above the obvious impact of the European recession, full storage tanks around the world and no major purchases by strategic reserves, most notably that of China.
Nevertheless, it was instructive that Saudi Arabia was effectively accused of seeking to manipulate the price of crude for its own advantage. What short memories people have! They forget that when the price of oil was surging to levels that would have damaged the health of the world economy, the Kingdom pumped every barrel of oil it could in order to stabilize the price. No one blamed us then for seeking to protect the interests of the wider financial and business system by manipulating the price downwards.