Oil markets could become more volatile again, on news today that Saudi is to pump an extra 3000kbd of oil in June. Other Gulf States including Kuwait and UAE may follow its lead. On the face of it, this is good news for the chemical industry, as it should bring costs down. But there has been evidence recently that converters have been building stock in advance of expected price rises. So any benefit from lower costs may be partially offset by lower demand, as they de-stock again.
Also noteworthy was the timing of the announcement. Both the Wall Street Journal and the Financial Times report that President Bush’s personal appeal for more oil was turned down yet again. This really does suggest, as I noted in February that Saudi-US relationships are difficult at the moment. According to the FT report, ‘Riyadh pointedly waited until Mr Bush had left the meeting before it made the announcement – leaving US officials in the embarrassing position of having already briefed reporters not to expect any movement from the Saudis’.
The FT speculates that the catalyst may have been a request from the Chinese government. Diesel is apparently very short in China following the terrible earthquake there this week. China is also probably short of energy, due to damage to a number of hydro-electric power plants. Bloomberg notes that PetroChina has ‘already purchased 2.9 mbd of diesel for June… in addition to 1.45mbd bought by China International.