Oil prices are up. And down. Saudi Aramco is America’s BFF

I do believe that’s the second time I have used that to entitle a blog post. Sad, really. I spotted this at The Oil Drum, originally (is there anything those magnificent bastards can’t do?).

Saudi Aramco, the state-owned national oil company of Saudi Arabia, is the largest oil corporation in the world and the world’s largest in terms of proven crude oil reserves and production.

It recently increased it’s crude prices (or rather, prices of crude) for Europe and Asia. But it cut the price for the US. Score!

Aramco cut prices of all grades it sells to the U.S. by between 35 cents and 50 cents a barrel, the Dhahran, Saudi Arabia-based company said in an e-mailed statement late yesterday. Aramco said it raised prices for shipments to Europe in August by between 40 cents and 70 cents a barrel.

Prices of light grades to Asia were also cut – only the heavy grades were increased. Saudi Arabia sure takes care of its friends. At a time when oil would be going through the roof, or would be if there was one:

oil futures

and with Nigeria worrying us all with the (in)stability of its oil, Saudi Arabia cuts us some slack – but not anyone else? Why is Saudi Aramco such a dick to the other energy-hogs of the world?

Bandar Bush and that other guy

I guess, to some extent, but (to quote the famous words of Harvey Danger) that only goes so far. Not quite a month ago, they reduced supply to Asia:

Saudi Aramco, the world’s largest state oil company, will cut supplies of its Arab Light and Arab Heavy crude to refiners in Japan, China and South Korea by between 9.5 percent and 10 percent below their contracted volume, officials said. The Organization of Petroleum Exporting Countries last year pledged to cut supplies by 1.7 million barrels a day to support prices.

See? Everyone says they’re the biggest. This was a combination of rising inventories in Asia, as well as soft demand (which would cause inventories to increase further). Score a point for rational pricing! Europe (discussed at the bottom) is a little different.

The odd part is that inventories in the US are at a nine-year high.

Crude oil inventories, which were expected to fall 500,000 barrels last week, instead rose by 3.1 million barrels.

Inventories of distillates, which include heating oil and diesel fuel, rose 1.2 million barrels. Analysts had expected a 200,000 barrel decline.

The problem in the US is that we/they can’t refine it – so oil is stocking up, petrol is not (sorry, gasoline).

But a lower-than-expected increase in refinery runs was disappointing, analysts said. Refinery utilization rose 0.6 percentage points to 90 percent last week, when analysts had expected a 1.1 percentage point increase.

Refiners have reported a number of outages this week, which means overall refinery runs aren’t likely to increase anytime soon, possibly clouding the outlook for inventories in weeks ahead.

Which still leads back to the same question – why lower the price to the US? If the supply of gasoline is stuck in the mud, as it were, the price or amount of oil coming out of Ghawar won’t have much effect at the bowser (and in fact it is demand for petrol that is driving the price of oil). And as inventories pile up, if the US ever does get its refineries running to form, Saudi Aramco risks losing control of the market – which is why they’re turned on Asia and Europe as they did.

My conspiracy theory:

The Bush administration has been eating up the strategic petroleum reserve on and off for the last several years, as Bush has mentioned wanting to do several times (hard as it is to imagine Bush as a man who will risk future stability, security and wealth in order to make his life as painless and hard-decision-free as possible). This is a helping hand from our friends overseas to get our emergency stocks back in order. Hell, I bet the refineries are running are fine, they’re just not telling us until the SPR is topped-up again.

In truth:

I don’t know. It could well be somthing entirely on the Saudi side – rational pricing, as I said. Trying to get demand down in the face of declining production, but taking it easy on political allies the USA? At the moment the big news is Nigeria and its impact on the global market – as good a time as any to pull something like this.

It’s also likely to be a combination – being seen to be helping the US, preventing big increases in inventories in Asia, and responding to strong demand in Europe while the North Sea’s production is down for maintenance. I still prefer the conspiracy theory though. People don’t believe economics, but they believe conspiracy theories…

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