Sunday, March 2, 2008

Saudi Oil Minister States Oil Will Not Drop Below $60 BBL

There were some interesting comments from the Saudi Oil Minister reported in the NY Times (here). Ali al-Naimi, the Saudi Oil Minister, stated that oil prices will not fall below $60 - $70 BBL in the future because this is the price at which alternative oil supplies, namely biofuels or tars sands, are profitable to produce. I think this has a couple of interesting implications. First, clearly there is not enough oil outside of OPEC to significantly drive down the price of oil. High oil prices, and OPEC oil dependence are here to stay. Second, OPEC sees - at least in the future - alternative supplies as its main competitor. What I think will be interesting is if OPEC attempts to push down prices if the world starts finding alternatives to conventional oil or finds ways to use a lot less oil, like plug-in hybrids. In five years, if plug in hybrids or electric cars are a real alternative and the price of oil remains high, OPEC will essentially signal to the world that that the peak oil theorists are correct. Given that the Saudis essentially have a national policy of claiming the world is not in danger of running low on oil, these comments are very revealing. Clearly, if he is truly speaking his mind, the Saudi Oil Minister believes OPEC does not have the ability to significantly lower prices in future or it does not feel threatened by alternative oil supplies and conservation.

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