U.S., Saudis to meet at oil summit
When representatives of top oil-producing and oil-consuming nations sit down together Sunday for a hastily called summit in Saudi Arabia, they begin with a disconnect. The United States will argue for more global oil production to lower record prices, and producing nations will say that the market is sufficiently supplied and speculators are to blame.
What happens to oil prices after the summit — a question of utmost importance to American motorists
This much is known: Saudi Arabia is the world’s only significant swing producer, the only one that can get new product onto global markets quickly. It’s already added 300,000 barrels per day of new production this year, and it vowed this week to add another 200,000 barrels per day starting in July. Only Canada exported more oil to the United States last year than the Saudis did.
Backroom whispers suggest that the Saudis may add another half a million barrels, which would raise their production to well over the 9.02 million barrels per day of production reported in April. Saudi production nearing 10 million barrels per day could reverse the perception that supplies are so tight that they prompt fears of disruption.
“I think whatever they choose to do with supply will always help us out. We believe that any addition of supply from the Saudis will certainly help on price,” said Ruchir Kadakia, an oil expert with the Boston-based energy consultancy Cambridge Energy Research Associates.
The Saudis themselves have suggested that part of the run-up in prices is insufficient refining capacity in the United States. If American refineries can’t handle the amount of oil that’s already on the markets, how would more oil on the market help, they ask.
If the Saudis really wanted to lower the price of oil, they could do it without pumping out more oil.
The Saudis sell oil at a monthly contract price that rises or falls in part on the average of price movements in trading of contracts for future deliveries of oil, called futures contracts. If the Saudis simply discounted the starting price, before it’s adjusted for changes in the futures market, by, say, $10 or $15 a barrel, it would have an immediate effect on global oil prices and the price of U.S. gasoline.
“That would be a meeting to remember,” said Peter Beutel, an oil analyst in New Canaan, Conn., who didn’t expect a price cut and said there were many questions before the summit.
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