With dignitaries from around the globe boarding planes amid hordes of photographers you would think it was a coronation in Jiddah, Saudi Arabia. Instead some analysts are calling it a state funeral for high oil prices. While I seriously doubt global demand is suddenly going to evaporate there could be some initiatives announced that could depress prices for the near future.
We are starting to hear much stronger rumors suggesting Saudi officials are going to scold the consuming nations for not planning ahead for increased demand by increasing their refining capacity to accommodate the lower quality grades of crude, which are still plentiful. Quite a few nations would have to plead guilty to that crime.
The oil companies don't want to spend $7-$10 billion and 5-7 years to build a new refinery only to have peak oil arrive before they can get it completed. Their plan is to continue bumping up capacity where possible at current refineries to minimize costs and time. Some of that new capacity has been heavy/sour crude capacity simply because that oil costs about $13 a barrel less than light/sweet crude. It is a profit motive for the switch not specifically a switch to a different standard.
Secondly, Saudi officials are said to be planning a televised session where the speaker is going to ask everyone attending to stand up if they are having trouble acquiring oil. We already know the answer. Nobody is struggling to keep their storage tanks full. They may be paying more than they like but nobody is running dry. Those that can only refine light/sweet crude have to pay a higher premium but it is available. The key point to this open question is to have a visible public demonstration that there is no oil shortage so the press can spread the word and hopefully depress prices.
Lastly there is a strong rumor that Saudi is going to announce another increase in production to an even 10 million barrels per day. As I wrote several times over the last week this is a way for them to silence the critics who claim they can't pump 10 mbpd for a prolonged period. If they can demonstrate this "claimed" capability then oil prices will decline sharply assuming everything else in the world is normal.
Saudi is hoping to get out of the spotlight and escape the blame consuming nations are putting on Saudi for not pumping more oil. Since Saudi is the only OPEC nation with any material excess capacity it falls on them to be the provider if all else fails. Saudi will not be able to avoid taking the blame and continue to claim they have 1.5 mbpd of excess production. Since nobody else has more than a bucket full of excess capacity I fail to see how Saudi can blame other OPEC nations for not opening the spigot.
One OPEC member will not be joining the party this weekend. Venezuela said they were not going to attend because there was plenty of oil in the market and they would not increase production unless it was an OPEC wide command. That sounds really good in a press release in Venezuela but the truth remains that Venezuela has not been able to even hit their quota for the last couple years. Production continues to decline as equipment fails for lack of investment in the sector. Insufficient drilling due to lack of capital has failed to replace oil produced. They are getting some direct investment from China and Russia that could increase their production in a year or two assuming Chavez does not spend the money on a social program instead of rigs and infrastructure. I am sure the Venezuelan delegation will be sorely missed. (grin)