This article was published in Middle East Oil & Gas Monitor, 15 May 2012.

The Saudi oil minister must be feeling pleased with himself. At the end of March, with Brent crude trading at around $125 per barrel, Ali al Naimi wrote a sharply worded column in the Financial Times claiming there was “no rational reason” for such high and economically damaging oil prices. Since then, Brent has slumped to around $112. Giving the market a stern talking-to apparently did the trick.

The oil price slide was also greased by news of rising OECD inventories, easing tensions over Iran, and more economic grief in the eurozone, so the minister cannot claim all the credit. But Mr al Naimi went much further. Not only is there no shortage today, he argued, but it was a “myth” that there ever could be. Saudi Arabia has capacity of 12.5 million barrels per day (mb/d), he said, and would “supply the oil market with any additional required volumes”.

It sounds like a comprehensive guarantee, but unfortunately the evidence suggests Saudi Arabia has long lost any meaningful power to stabilize the oil market, either in the short or the longer term. Since all forecasts that predict growing global oil consumption rely heavily on rising Saudi supplies, the cognitive dissonance between Saudi claims and the emerging reality is likely to prove highly disruptive.

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