don’t blame them…they are not responsible to keep prices high
The March production figures published recently showed that Saudi production increased in the face of low oil prices. There has been a lot of chatter decrying the Saudi action based upon the common perception that it is the Saudi responsibility to assist in price maintenance by adjusting production to support prices. May I suggest another way of looking at the situation that, actually, may make more sense than criticizing the Saudi actions?
Let us look at the situation from the Aramco perspective. Aramco prides itself on its role as an important, dependable supplier of oil to the world economy. Aramco spends billions of dollars to maintain the spare producing capacity that allows them to increase production on a moment’s notice when it is needed. Are you aware of any other production company that creates capacity that they do not expect to ever be used? They have also shown a reasonable attitude toward backing off on production when that is called for. All this at a considerable cost that they have borne. We should all be appreciative of the Aramco stance.
Let us refresh our understanding that Saudi Aramco’s intention is to be reliable in meeting the demand that is placed against it. Actually, we would not wish it otherwise. Then how do we, in good conscience, criticize them for meeting the demand in March that was presented in the normal course of events? The fact that US export restrictions caused US production to go into storage, and thereby deprived the international market of that increment of supply, should not result in a complaint when the Saudis step in and make that oil available. Of course their production went up. Had they been unwilling to meet that demand they could have rightfully been accused of restraint of supply – the last charge that a reliable supplier wishes to confront.
It appears that we have been conditioned to expect more of Saudi Aramco than is reasonable. We expect them to be a dependable supplier of the last 10% of the worlds’ petroleum supplies. We expect them to maintain the ability to rapidly fill supply deficits resulting from abrupt supply disruptions. We expect them to provide a price umbrella for the entire industry, even if it means applying uneconomic shut-ins to allow others to reap the rewards from high prices. Are we expecting too much?
Maybe we should expect to contribute financially to a business who takes on this protective responsibility? Would we expect a large insurance company to provide business protection and insurance and receive no premium? It seems that, instead of offering payment, or even gratitude to Saudi Aramco for their benevolence, we, instead, criticize them for not protecting OUR interests sufficiently. Minister Naimi made a very reasonable case, based upon sound business principles, for their actions to protect their own markets. Was there a huge outcry against Saudi Arabia for that stance? Of course there was. Should there have been? NO!
I suggest that it is time for the industry to objectively assess the role that Saudi Aramco has chosen to perform and graciously acknowledge the debt that the industry, and yes, the world economy, owes to Saudi Arabia for their business statesmanship.
Our message to the Saudis should be Thank you, Thank you, Thank you!