Friday, June 10, 2011

The Saudis Can't Save the Oil Market

Kent Moors submits:

The oil markets are in decline today on the heels of a Saudi decision to provide additional crude volume. The move comes as divisions within OPEC intensify (for reasons we discussed in "What Iran's Oil ?Musical Chairs' Could Mean for the Region," June 3). There is still no indication how much additional Saudi oil will be flowing, but the prospect alone was enough to move the market price down more than 2.5% in New York and 1% in London.

The question now is whether the decision in Riyadh ? and the extra volume ? will be enough to bring balance to the market and subdue existing pressures that are pushing the oil price higher.

In a word, no. The respite will, in fact, provide two contrary results.

Result 1: Sets a Price Ceiling (But Only Short Term)

The first is a short-term price ceiling in major price hikes. This is

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