Saudi Arabia, which benefited immensely from record oil prices last year, has sent signals in the past two weeks that it is committed to keeping oil at about $50 a barrel â€” down about a third from the summer peak that shook consumers around the world.
The indications came in typically cryptic fashion for the Saudis. In Tokyo last week, Ali al-Naimi, the Saudi oil minister, said that his country’s policy was to maintain “moderate prices.” The previous week, on a stop in New Delhi, he effectively vetoed an emergency meeting of the Organization of Petroleum Exporting Countries to discuss propping up prices after oil briefly dropped below $50 a barrel, the lowest level in nearly two years.
Here’s the money quote:
The events that propelled oil prices above $77 a barrel last July, then dragged them down again, were beyond the control of any single producer. Still, Saudi Arabia, which is by far the largest oil producer within OPEC and sets the cartel’s agenda, is seeking to avoid a repeat of the increase in prices while trying to put a floor beneath them.
We’re always told that nobody can really have an impact on oil prices, but here go the Saudis. Anyhoo, this was also interesting:
“High prices are not in the interest of Saudi Arabia,” said Sadek Boussena, a former OPEC president from Algeria. “We’ve all seen what $70 does: It attracts alternatives, it reduces demand.”
That would be something to think about, if Kevin Drum hadn’t already shown us that demand (at least in the gas-hungry U.S.) doesn’t really drop when prices go up:
After all, from early 2005 to mid-2006, the average price of gasoline increased more than 60%. (Data here.) And what did this get us? As the accompanying chart show, during that period total miles driven flattened out and per-driver mileage decreased only slightly. That’s not a very elastic demand curve.
Prices went up more than $1 a gallon for Americans, with little effect on actual consumption and demand (and don’t they argue that demand is a component of high prices anyway?), so I’m wondering why Boussena thinks demand is impacted by high prices.