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Saudi Arabia's move to keep oil flowing brings crude prices down

Energy traders were calmed by news that Saudi Arabia was in talks with European refiners to fill the gap caused by the disruption in Libya. When it comes to shoring up oil markets, the Saudis have put political grievances aside.

February 25, 2011|By Neela Banerjee, Los Angeles Times

Moreover, Saudi Arabia has invested more than $60 billion in refurbishing existing fields that sit idle but can be brought on line within 30 days or so, said Jean-Francois Seznec, an expert on the political economy of the Persian Gulf and visiting associate professor at Georgetown University.

That investment has given Saudi Arabia about 3.5million barrels of so-called spare capacity, more than any other country. And though Saudi crude oil differs from Libyan petroleum, most refiners in Europe will be able to process it, analysts said.

The Libyan crisis has touched off calls largely from Republican congressional leaders to open more U.S. territory to drilling. But the United States has less than 2% of the world's proven reserves, compared with Saudi Arabia's nearly 20%.

In the meantime, the Middle East crisis may push the U.S. and Saudi Arabia closer together. The biggest beneficiary of increased Saudi output would be the United States, which consumes a quarter of the world's crude oil. And with friendly regimes around it falling, the Saudis may be compelled to draw nearer to the U.S., Gause said.

"I think it's comparable to how they felt after the shah fell," Gause said. "It's the same sense of shock and disappointment in the lack of American responsibility. But the changes are so big that they force Saudi Arabia back to us, because they have no one else they can rely on."

neela.banerjee@latimes.com

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