The Saudis are the only producer with excess capacity, which puts them in the position of swing producer. They post prices and then let their refiners buy as much as they want at their posted prices. They have no choice but to be price setter, but they also don’t want anyone to know they are simply setting prices, so they talk around it and have obviously done a good pr job in that regard.
So after production spiked due to lost Libyan output, production now seems be falling back to prior level as Libya comes back online. There are other things affecting supply and demand as well, also altering Saudi production accordingly. The Saudis lose control of price on the upside only when they don’t have sufficient productive capacity to meet demand. And they lose control on the downside when they can’t cut sufficiently to address a fall in net demand.
Looks to me like they will remain in that catbird seat for quite a while. And if they keep prices relatively stable there will not likely be a 70′s style global inflation problem.
So after production spiked due to lost Libyan output, production now seems be falling back to prior level as Libya comes back online. There are other things affecting supply and demand as well, also altering Saudi production accordingly. The Saudis lose control of price on the upside only when they don’t have sufficient productive capacity to meet demand. And they lose control on the downside when they can’t cut sufficiently to address a fall in net demand.
Looks to me like they will remain in that catbird seat for quite a while. And if they keep prices relatively stable there will not likely be a 70′s style global inflation problem.
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