have arguably replaced Europe as the biggest risk to global markets right now. Talks of a possible supply shock centering on geo-political issues in Iran has kept crude oil above $100 for a while now.
But in an exclusive editorial for Financial Times, Ali Naimi, minister of petroleum and mineral resources in Saudi Arabia said supply is not a problem and there is no “rational reason” for high prices:
“It is clear that geopolitical tensions in the region, and concerns over supply, are helping to keep prices high.
Yet fundamentally the market remains balanced. It is the perceived potential shortage of oil keeping prices high – not the reality on the ground. There is no lack of supply. There is no demand which cannot be met. Total commercial stocks for OECD nations are within target, and there is at least 57 days forward cover, enough to handle almost any eventuality.
So what can Saudi Arabia actually do?
We want to correct the myth that there is, or could be, a shortage. It is an irrational fear, a fear without basis. Saudi Arabia’s current capacity is 12.5m barrels per day, way beyond current levels demanded, and a reliable buffer against any temporary loss of production. Saudi Arabia has invested a great deal to sustain its capacity, and it will use spare production capacity to supply the oil market with any additional required volumes.
This is not empty rhetoric. We have proved to be a reliable supplier many times in the past. We increased production following the invasion of Iraq. We increased production following a workers’ strike in Venezuela in 2002. We stepped in following a surge in demand from emerging economies, specifically China, in 2004. We increased supplies to the US in the wake of Hurricane Katrina. And when a popular uprising swept through Libya in early 2011, we stepped up production to offset any losses.
We have done it many times before, we will do it again.”