Why Saudi Arabia is losing its power to calm the oil markets

at 04:11 PM ET, 04/04/2012


Everyone please remain calm. (FAHAD SHADEED/REUTERS)
In the old days, whenever oil prices got bumpy, the United States could ask Saudi Arabia to pump out more crude and calm the markets. But that’s increasingly no longer the case. Saudi production is struggling to keep up with rising demand in places like China. What’s more, as Jim Krane reports today, Saudi Arabia is growing so fast that it’s consuming its own oil at a shocking rate:

With domestic electricity demand rising 10% per year in Saudi Arabia, the kingdom now devours more than a quarter of its oil production—nearly three million barrels per day. International Energy Agency figures show that Saudi Arabia now consumes more oil than Germany, an industrialized country with triple the population and an economy nearly five times as large.

Worries about Saudi excess capacity are one reason why Iran-related tensions have driven crude prices up so high. By one estimate, this spare capacity could vanish entirely by 2020. If that happens, oil prices will get seriously volatile.

 
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