Saudi Arabia’s Oil Minister and the OPEC Secretary-General have both said that the oil market is now very well supplied and that they believe the current price of oil (Brent) is $15-$20 p/bbl in excess of where it should be.
That was one of the factors that undermined the price of crude today, albeit by no means the only one. The cut in the US credit rating outlook and further tightening in China also contributed. By the close of trade in Moscow the price of one-month Brent was off $2.1 p/bbl at $121.3 p/bbl (WTI at $107.1 p/bbl). OPEC producers are very well aware of the danger that a rising oil price may lead to slower global economic growth and then to oil demand destruction. The nightmare how quickly oil collapsed in the 2nd half of 2008 is still very fresh.
On the other hand, Saudi Arabia, in particular, now needs a higher oil price having pushed up domestic social spending as a result of the civil unrest across North Africa and the Middle East. With one of the fastest growing populations in the world and approximately 5-% youth unemployment, the ruling royals are desperate to try and buy off any trouble. Several estimates shows that the Kingdom now needs oil (Brent) to average approximately $100 p/bbl to balance its budget. That is also approximately where Russia’s federal budget balances.
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