Peak Oil News: Why Saudi Arabia Refuses to Boost Oil Supply

Thursday, February 07, 2008

Why Saudi Arabia Refuses to Boost Oil Supply

5 Reasons the Saudis Won't Turn On the Spigot

President Bush made America's appeal to Saudi Arabia on his recent trip to the Middle East: "As your financial and military backer, can't you pump some more oil. Please? I mean, after all, our economy is moving toward recession, we burn more oil than anyone, the price of oil has almost doubled in a year's time ... and isn't the customer always right?"

The answer, as we all know, was, "Nah."

But, why?

In an op-ed in the Christian Science Monitor, Steve Yetiv, a political scientists, and Lowell Feld, a former Department of Energy economist, lay out these possibilities:

1. Supply Isn't the Problem:Oil prices are due to market speculation, the weak dollar and political strife, not supply. That's Saudi Arabia's, and OPEC's, public line, and it may well be true.

2. It Needs the Cash:Saudi Arabian demographics are shifting such that there's less oil revenue per person (72% less than in 1980) so it has to cash in while the getting is good. That means keeping oil prices as high as possible without triggering a recession that would cut into profits.

3. Iran:Saudi Arabia is scared of fellow OPEC member Iran, and doesn't want to annoy Iran's leadership, which opposes any supply increase.

4. The Future is Green:The talk in the industrialized world is about going green, going energy independent and doing something about global warming – none of which bode well for the future of oil. Saudi Arabia may want to cash in while it still can.

5. Peak Oil: Saudi Arabia may have hit its own personal peak oil, which would likely mean the world has too. In other words, it may be pumping as much cheap easy and profitable oil as it can. Boosting supply, then, would not lower the world price or boost its profits since whatever new oil it could pump would be extracted at a greater price. The authors point out that the Energy Information Administration has lowered its expectations for Saudi Arabian oil output in 2010 by 22%.


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