Saudi doesn't need to scrape the barrel: raising the bar for target oil price
The kingdom now appears content to live with prices around $110
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There has been no official announcement but Saudi Arabia's effective target for oil prices appears to have risen from $100 to $110 per barrel, based on recent changes in the kingdom's production levels.
In theory, the kingdom remains committed to an informal target of $100 for Brent first announced in a CNN interview given by Oil Minister Ali Al Naimi in January 2012. "Our wish and hope is that we can stabilise this oil price and keep it at a level around $100," Naimi said.
Speaking after a meeting of energy ministers in Riyadh in October, Al Naimi reiterated the $100 figure. "We would like to see the price moderating. Today Brent is $111, I think, or $112, we would like to see it lower, towards $100," he told reporters.
The kingdom now appears content to live with prices around $110. It is focused on balancing the physical market to avert a bigger-than-usual build up of stocks in the first half of 2013 rather than attempting to push prices back towards $100.
Behind the scenes, the United States and some other members of the International Energy Agency (IEA) reportedly agreed to release oil from the Strategic Petroleum Reserve (SPR) and other government-controlled stockpiles if Brent rose above $120.
In the event, it peaked just below $118 and no stocks were released.
Now the presidential election is past and the US economy has skirted recession there is far less pressure on the kingdom to be seen to be pushing prices lower. Policymakers have therefore reverted to their normal posture of producing to demand.
Prices at $110 are probably sustainable in the short term but not in the medium and long run. The global economy has successfully adapted to cope with $110 oil. Prices are probably hampering recovery rather than pushing the US and the other advanced economies towards recession.