Sunday, June 22, 2008

Saudi Oil Output to highest ever level…..is it enough for oil prices to cool off?

News has just come in that King Abdullah of Saudi Arabia has said that the largest oil producing country of the world Saudi Arabia will up its oil output to 9.7 million barrels per day. He hinted that this number may also go up to 12.5 million barrels in the future.

In his statement, he also said that OPEC have never tried to shoot the oil prices towards north - he lays the blame of the present oil crisis on speculators. He also said that countries levy huge oil taxes and then sell to their citizens thus pushing up oil prices. In India, government adds atleast Rs. 10 towards the price of petrol and then gives a lot of subsidies in this regard (due to the sudden rise nowadays)! All his arguments may tempt people to think that oil prices will go down.........Due to increased supply by Saudi Arabia and subsequent cooling off. But some oil analysts and economists beg to differ.

Not only is crude oil technically very strong but it might just go all the way to $145 - $148 if a short selling comes in oil in the next few days. Short selling essentially means- when people take a bet that oil prices will fall. When their bet is successful, they speculate even more. Finally at unresistable rates all their bets reverse due to market forces which compel the oil prices to rise one-way. Therefore, it is expected that perhaps, oil prices may rally to $148 a barrel in the near future.

In this time of uncertainty, it would not be wise to call the shots so early. Rest all depends on the forthcoming meeting between OPEC and Federal Reserve (of US) later this month. Do check the blog then for more oil updates and analysis of the meeting.

till then, please post a comment.

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