Make my day!
Saudi oil minister Ali al-Naimi is doubling down on his war against the U.S. shale producers by promising to raise production if demand rises. I say Ali, make my day! You see, if the Saudis raise production their capacity will be tapped out, and if they lower production more, this uptick in demand may turn into a surge. Not only is demand improving in the world but in the Saudi kingdom as well.
Al-Naimi claims they have close to 1.5 million to 2 million barrels of spare capacity and will use it if demand rises. Of course, for every barrel they pump global spare capacity will tighten. Besides, according to Bloomberg News, "Saudi Arabia reduced crude oil exports in April as the world's biggest producer used record supplies domestically for a burgeoning refining industry." Shipments fell to 7.74 million barrels a day from 7.9 million in March, the Riyadh-based Joint Organizations Data Initiative announced on Thursday. The nation processed 2.22 million barrels a day in domestic refineries in April, the most since at least January 2002 when JODI started collecting statistics from governments.
If Ali Naimi has to pump more oil, then it means that they have fallen behind the curve and the price drop set off a demand explosion. Yet, to have that actually happen we have to avoid a total financial meltdown if Greece leaves the Eurozone.
The deadline we thought we would be talking about today was the Iranian nuclear talk deadline, yet nobody is talking about that. The talks are supposed to have a June 30 deadline. Iran continues to cut oil deals like they have a sanctions-lifting deal, but it is hard to believe that the Iranians will agree to the type of access to their nuclear sites that will be required to get a deal done. It is now very clear that even if a deal is reached it will take months before any sizable amount of Iranian oil is unleashed on the global market.
Low crude oil prices are indeed curing low prices and spurring U.S. gas demand. Bloomberg news reported that U.S. fuel consumption increased to the highest level for the month of May since 2008 as low prices spurred demand, the American Petroleum Institute said. Total deliveries of petroleum products, a measure of consumption, climbed 5.4% from a year earlier to 19.5 million barrels a day last month, the industry-funded group said Thursday.
Gasoline prices were the lowest for May since 2009, according to the AAA. There is an old adage for corn that it can be knee high by the Fourth of July! We can see oil at $65 by the Fourth of July!