RIYADH: The big story of the week was Reuters reporting that Saudi Arabia was mulling selling its oil in currencies other than the dollar if Washington pushed ahead with legislation exposing OPEC to anti-trust prosecution.
The story, which cited unnamed sources, added further drama to a narrative that is hardly in need of any more twists and turns of plot.
Before getting too carried away, it is worth reflecting on the absolutely vital role that the Kingdom of Saudi Arabia plays in balancing global oil markets.
Saudi Arabia is one of the 20 most powerful economies in the world and that same world depends on it to ensure that the fuel that powers people’s cars and heats their homes is in steady supply.
It is hard to imagine a world without the Kingdom playing that vital role. Changing the pricing mechanism deployed to price oil is not so unusual.
After all China, which does not export crude oil but is the world’s largest crude oil importer, has launched its own oil pricing exchange as a clear direction to detach from dollar dominance in pricing crude.
The establishment of the Shanghai Energy Exchange was the first step in displacing the dollar in almost 10 percent of the global oil consumption.
Whether Saudi Arabia wishes to price crude in dollars or riyals is ultimately a matter for the government as it determines what is in the best economic interests of the country. In this there is no difference with other countries and other industries.
For example, car makers price their cars without referring to global benchmarks and without pressure from the media, speculators or money managers.
The debate around pricing should not deflect from the Kingdom’s pivotal role in balancing global oil markets. Attempts to criminalize OPEC through the US bill known as “NOPEC” threatens global energy security more than OPEC itself or indeed its largest producer.
The other big running story that has been moving global energy markets has been sanctions against Iran and the granting of import waivers.
With Brent crude passing through the $70 mark, oil prices have gained almost 30 percent since the beginning of the year. This may encourage the administration of US President Donald Trump to grant waiver extensions for some major oil importers.
Looking at the current trajectory of prices, Brent crude may not be far off from reaching the mid-70’s mark by May amid a continuing supply deficit and further potential supply outages.
With this in mind, earlier predictions about an economic recession dampening demand for oil and refined products was completely wrong. It ignored market fundamentals and drove prices lower by failing to take account of seasonal demand, trade balances and rising refinery capacity.
from Business & Economy http://bit.ly/2G55OVl
via Latest News of Dubai
0 Comments