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  • Can The Saudis Ride To The Rescue?

    The fate of the global economy may hinge on surging oil production from the world’s biggest exporter. But it’s not clear that the Saudis have the juice.

    Upstart: Global Business

    The fate of the global economy may hinge on surging oil production from the world’s biggest exporter. But it’s not clear that the Saudis have the juice.

    Oil prices spiked Tuesday as violence swept Libya, raising the prospect that the world’s 18th-biggest oil producer could be taken off line.

    Shock, but no awe

    OPEC sought to ease fears of a supply shock, promising to release reserves and increase production if need be. The International Energy Agency said “we are not in a situation where that is necessary.”

    Even so, investors are clearly expecting OPEC to step into the breach soon before oil prices rise further. Futures contracts hit $98 in New York Tuesday and $107 in London – the highest level since 2008. Gasoline prices, recently in the low $3-and-change range, look poised to run to $3.50 or higher this summer.

    “I still expect that OPEC nations will pump more oil to avert a spike in oil prices,” economist Ed Yardeni wrote Tuesday on his blog. “It is in their interest to do what they can to reduce global instability caused by higher fuel prices.”

    No one doubts his logic. But some oil watchers question whether OPEC is actually capable of boosting production and keeping it there for a long time.

    The questions about OPEC’s capacity center on the world’s biggest oil exporter, Saudi Arabia. The Saudis accounted for 12% of global oil production in 2009, and that doesn’t count their spare capacity. Saudi Arabia estimates that buffer at 2 million barrels a day, though the U.S. government says Saudi spare capacity is “well above” that stated target.

    Those comments suggest an oil-addicted global economy has little to worry about from this week’s price spike.

    But not everyone is convinced. Jeffrey Brown, a Dallas-area petroleum engineer, questions the assumption that the Saudis can meet the world’s needs.


    Upstart: Business and Management for 20-40 Year Old Professionals

    Filed Under: Global Business


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