“Give Me Some of that Sweet,Sweet Crude!”
Sometimes we talk quantity and sometimes we talk quality. Last week Saudi Arabia tried to calm the oil markets by trying to make crude oil available because of the ongoing war in Libya, not to mention unrest in the rest of the region. They contacted European refiners to let them know that the Kingdom would graciously consider their request for oil. Nice guys right?
The problem of course is that most of those European refiners turned down the Saudis offer mainly because they lacked the ability to refine the Saudi sour crude. So, it was not a surprise when reports that Kuwait, the United Arab Emirates and Nigeria might make their higher quality crude available in extra quantities and the market reacted.
Oh sure, oil prices broke a bit, but the promise of some higher quality crude for Europe really reeled in the Brent crude/WTI spread that had widened at one point to over a $20 a barrel premium over Brent. This spread had really been blown out of whack as North Sea production faltered and tension in the region lead to fears of tight supply of higher quality crude leaving European refiners scrambling because of the regional issues. Yet despite the dutiful break in oil, the market failed to follow through because the risk is not just to Europe but to the world in general.
Violence in Libya continues and tensions are red hot in Algeria, Bahrain, Iran, Kuwait, Yemen, Egypt, Jordan and the market's greatest fear, Saudi Arabia. Even the Energy Information Agency had to acknowledge the increasing risk to supply in its recent Short Term Energy Outlook.