Thursday, June 9, 2011

Saudi Arabia and the Price of Oil

     Yesterday's OPEC meeting ended with the Saudis being outvoted on raising production. This is a double-edged sword for the Kingdom, which is pumping billions into jobs and mosques in a bid to avoid a popular uprising. The Arab Spring, which started with Facebook and ended with Egypt, Tunisia, Syria, and Yemen in tatters, won't come to Saudi as long as the money holds out. A trader told me that Saudi tried to look like the "good guys" in yesterday's OPEC meeting, cajoling and pushing to raise the production ceiling. In truth, Saudi is angry with the US for supporting all the riff-raff rebels in the Middle East and loves that the current high price of oil is hurting the US economy. According to analysts, if Saudi keeps up its social and religious investments to keep the peace, the price of oil has to reach $300 a barrel to support it. Take that, American infidels!
     And, although US demand for oil is said to be quite a bit below normal, you wouldn't know it on the road. I've been on Route 95 from MA to ME and back a bit lately and I haven't seen so many huge RVs in years. One caravan of about 10 RVs came all the way from Oregon - imagine their collective gasoline tab. And up in the North Woods of ME our peace and quiet was repeatedly interrupted by kids on ATVs going around in circles for hours.  If Americans continue to believe that cheap oil is a national entitlement then the Saudis will get their wish. I'm putting a bet on at Ladbrokes that we reach $300 by the end of the decade.

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