Saudi Enters The Turm-Oil

Aditya Rao

For the first time in history oil touched a rate of $140 a barrel. Luckily it managed to stabilize earlier today at $134.This can be attributed to the sudden announcement made by the Saudi Arabian government that it was increasing oil production by Two Hundred Thousand barrels a day.

But the problem is that as much as this is a welcome move to the rest of the world including India and the US, one simply can’t expect oil prices to drastically come down. This is not the first effort made by the Saudi government to contribute to solving the oil crisis. In an effort to stem the lack of oil supply and sky rocketing prices the Saudi government hiked oil production by Three Hundred Thousand barrels a day earlier in the month of May.

Which means that as of today the world’s largest exporter of oil has now boosted its oil production by a staggering 500,000 barrels a day. Oil mills in Saudi Arabia are working overtime.

But the problem with the Saudi increase in oil production is the fact that local refineries and oil companies are not interested in buying crude. The reason for this is that while the rest of the world struggles with high oil prices; the Saudi government views this as an opportunity to make more money exporting oil to countries.

In an effort to solve this problem the US government in association with the UN have been holding talks with the Saudi government in order to persuade them to offer crude to countries at lower prices. A discounted rate allows the refinery to buy the oil at a lower rate. Large parts in determining crude prices are also determined by the government which is why it’s no surprise to see them cutting rates on import duties.

That being said, the Saudi government cannot afford to get complacent in charging too high a price for crude. The oil problem has been identified by the world as a long term major situation which is trying to be remedied by each investing in alternate sources of energy. The US is heavily trying to explore the use of ethanol to fuel vehicles.

China is trying to do so with coal while India is trying to do so with coal as well as lignite and a little known material known as Thorium. The amount of money going into the exploration of alternate sources of energy is quite phenomenal and perhaps rightly so but as of right now human kind can only depend on oil for its energy needs.

That’s something that clearly puts the Saudis’ in a very prominent position. They can afford to hike crude prices especially at this time. With the refineries clearly saying ‘NO’ to buying oil at such high prices, even a free market economy is forced to bring in its government to pay for the hike.

That’s the part that hurts the government even further and over time the average consumer as well, which is why there is now such a clear link between rising crude prices and inflation.

But, for the time being the world must depend on countries like Saudi Arabia for its oil needs no matter how high a price they charge.