Record High Oil Prices
- Pipeline
- Saudi Aramco News
- Industry News
Author: Aramco ExPats
Released 29 June 2006
Saudi Arabia has offered compelling proof that record high prices have no relationship with supply and demand.
The world's biggest crude exporter chose to make a huge cut in its production through the second quarter but the growing demand for oil was still satisfied. From July 2004 to March 2006 the kingdom had been pumping in excess of 9 million barrels per day. In May, Saudi Arabia produced 9.05 million bpd, the lowest level in almost two years and well below the kingdom's 11.3 million bpd capacity.
"There is absolutely no relationship between price and supply and demand," Saudi Oil Minister Ali Al-Naimi noted. He said in early June that crude oil was worth no more than $50 a barrel based on fundamentals.
He has repeatedly said that the oil price is determined by the multi-billion dollar market that brings together oil companies, traders, investment and hedge funds.
"Part of today's price equation is tied to supply security issues themselves, but we also have to consider the distorting role that speculation plays in today's oil markets," said Abdallah S. Jum'ah, president of Saudi Aramco.
"The reason for the cutback is simple. People are not asking for oil," said a senior OPEC delegate.