Kathy Lien’s thoughts on the Oil Summit this weekend.
Can Saudi Arabia Drive Down the Price of Oil?
This weekend, Saudi Arabia will be hosting an Oil Summit in the city of Jeddah, located on the coast of the Red Sea. They have invited executives from oil companies, leaders of nations and the world’s largest oil producers.
The big question for markets is whether or not Saudi Arabia can drive down the price of oil.
So far, I’m a big skeptic. Earlier this month they announced a 200k barrel increase in oil production, but instead of sending oil prices lower, it sent them higher. The same can be said for the pressure that the US has been exerting on oil producers; oil prices only continued to trend higher. The only announcement that actually managed to drive crude lower was yesterday’s price hike from China and even that sell-off failed to last.
There are 3 things driving oil prices higher:
1. Speculation
2. Weak Dollar
3. Supply and Demand Constraints
There will be a lot of finger pointing this weekend. Saudi Arabia is the only OPEC nation with spare capacity. With Venezuela not attending and Iran at odds with Saudi Arabia on whether an oil output hike would matter to prices, OPEC as a group is not expected to hike production. Most OPEC nations blame the oil price rise on speculation.
This Summit is Saudi Arabia’s opportunity to prove to the world that they can increase capacity but what we want to know is how high these oil producing nations think oil prices can rise.
In order for oil prices to start coming down, big changes need to be made and made quickly. Drilling offshore is not the solution because it would be years before we see any results.
How to Bring Relief to US Consumers
If they really want to help consumers, the US needs to propose a similar solution as Italy. The Italians plan on raising taxes on oil companies and giving away that revenue as pre-paid discount cards worth about $620 US dollars to approximately 1.2 millions Italians. Of course, this would only work if the oil companies do not follow suit and raise prices.
If oil prices do not fall after the Jeddah Summit, not only will it keep the dollar firm, but it will also force central banks around the world to remain hawkish.
USA Today has a great guide to some of the issues at play during the oil summit:
