The 800 pound gorilla of oil production, Saudi Arabia, has called a meeting of the producing and consuming nations to discuss the runaway price of oil and what to do about it. In a meeting chaired by King Abdullah the Saudi cabinet restated their view that the spike to $138 on Friday was unjustified by fundamentals.
The cabinet asked Oil Minister Ali al-Nuaimi to convene a meeting soon of representatives of producer and consumer nations and firms operating in the production, export and trading of oil to discuss the jump in prices, its causes and how to deal with it objectively.
Saudi has also notified all oil companies with which it does business, as well as consumer nations, that it will provide them with any additional quantities of oil they need. This appears to be an open statement that they are willing to ignore their OPEC quotas in an effort to slow down the speculation. There is nothing stronger in quelling prices than oil filling up storage tanks. As tanks around the world become full the bid for crude would drop substantially. Saudi has proved it over and over again when they were embroiled in battles inside OPEC.
The Saudi cabinet said it still believed that the oil market had an adequate supply of crude and mounting stocks to trade. "The soaring prices are not justified by the reality of the oil sector or market fundamentals."
Last month Saudi Arabia said it would boost output by 300,000 bpd to offset declines of other OPEC nations. That would bring its production in June to 9.45 mbpd.
U.S. Treasury Secretary Henry Paulson swiftly welcomed the Saudi call for talks. "It has got to be constructive so I welcome it" Paulson said in an interview on CNBC. Britain also welcomed the talks and said their energy minister will be discussing them with Saudi on a visit next week.
With the U.S. and Britain putting pressure on Saudi Arabia to raise production it is not surprising that Saudi finally caved. There are rumors behind the scenes that the U.S. was going to halt the sale of several billion in military equipment to Saudi if they did not open up. You hear about OPEC quotas and OPEC meetings and everyone thinks OPEC rules the oil sector. In reality Saudi Arabia is the key because Saudi has more excess production than some members have total production. Saudi could force the price down if they wanted and they have done it in the past.
The price of oil fell to $135.30 on the Saudi news.