28 May 2008

Do you blame the Saudis for the high price of oil?

The Saudis are being royally lambasted by the US Congress and others for not doing enough to affect the price of gas. The solution seems to be simple enough pump more oil. As one of the few that have the capacity to do so - the Saudis are being expected to turn on a dime and just do that.

However I posit a different point of view. It is actually not in their interests to do this. Why?

They are not the root cause of the problem. The Saudis are one of the few oil producers who have consistently invested in new production according to a recent piece on CNN. Others have not been so smart. Further the cause of the rapid rise is not necessarily (carefully put) the problem. Rather it is speculators - largely in the US Commodities markets who have been driving up the cost. The Saudis through their investments are one of the few that do have a variable oil production. We should be a little thankful that they do.

So if the Saudis do increase production, then at the moment it is not something that will affect the price of oil. There is a certain amount of hoarding going on by the Chinese and even by the traders themselves, Also I should note by the US where it is called the Strategic Oil Reserve. As soon as it would be opportune, the traders will dump their positions and switch sides generating instead a short position from which the price of oil will plummet.

Nope we have to continue to be frugal for now and put in place LONG TERM solutions. I the mean time get rid of the SUV and start being smart about your energy costs.

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