Saudi Arabia boosting its oil production might not even bring short-term relief

Soaring oil prices have caused lots of trouble in the recent months. Motorists are forking out more and more money for gasoline and are struggling to afford their mobility, politicians around the world talk a lot about who to blame for this unstoppable development and the alleged culprits are speculators, the OPEC countries, oil companies… In Asia, several states had cut their fuel subsidies causing massive gasoline price hikes and heavy protests. Western politicians argue about how to control the market to stabilize the price.

Those who believe that legislation aimed at limiting market speculation would help reduce gasoline prices considerably should recognize that it’s not the speculators that set the price so that they can make a big profit but the high oil price is just a result of demand exceeding supply and fears that supply cannot be expanded or even is likely to decline. Experts from the Energy Watch Group say that oil production has already peaked in 2006 and will decline at a rate of several percent a year even as demand increases.

After an emergency meeting of oil producers and consumers, Saudi Arabia announced that it would boost its production by 200,000 barrels a day. Besides, Saudi Arabia maintains that its oil reserves are able to supply much more oil if there’s demand. However, many critics doubt that Saudi Arabia can even maintain its production capacity. Today, Saudi Arabia produces 9.5 million barrels a day and intends to expand its production capacity up to 15 million barrels a day  in the future. The oil industry insider Matthew Simmons has predicted that Saudi Arabia’s most important oil fields are going down. A considerable number of oil traders believes that Saudi Arabia will not be able to boost its production and thus confirm the peak oil theory and fuel even further panic. The problem is that most of Saudi Arabia’s oil is from a few tremendous oil fields which have been in production for decades. In order to maintain their capacities, enormous amounts of water are pumped into these oil fields to build up a pressure which pushes the oil towards the surface. This practice is expensive and gives an insight on how overused these oil fields are. And even if Saudi Arabia can export more of its precious resource, this would only bring short-term relief. Instead of looking for people to blame and to ask for a boosted supply, the focus of our attention should be to save energy and to stop depleting it. In this regard, John McCain’s proposed $300,000 government price to anyone who develops an electric car battery is probably the best step that can be taken rather than having the state interfere in the market.


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Filed under Economy, Global Issues, Politics, Uncategorized

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