Media Rorschach Test: Divergent Readings on the Saudis’ Wee Production Increase

The interpretations of the implications of the Riyadh-Washington pas de deux over oil production increases were surprisingly disparate, a seeming Rorschach test of sentiment about the US, Bush, and the Middle East.

The papers that see themselves as US opinion leaders, namely the New York Times and the Wall Street Journal, stressed how little the White House had secured. Was this mismanagment of expectations by Team Bush, undue hope on the part of the public at large, or simply a reflection of prevailing distaste with the lame duck president?

No matter how you look at this, there is less here than meets the eye. 300,000 barrels won’t have much impact on oil prices; the most important issue for Bush is that he be seen to be Doing Something. Unfortunately for him, Goldman’s bullish forecasts have sway; the announcement by the kingdom took only a bit more than a buck off the per-barrel price.

Yet foreign and even some domestic outlets noted a concession had been made. From the Financial Times, in “Saudis to boost oil output after US pressure“:

Saudi Arabia said on Friday that it was increasing its oil production to its highest level in two years, bowing to intense US pressure after the price surged to a fresh record of almost $128 a barrel.

The announcement of a boost to output by about 300,000 barrels a day came after a plea by George W. Bush, US president, to King Abdullah of Saudi Arabia in Riyadh….

Saudi Arabia said on Friday that it was increasing its oil production to its highest level in two years, bowing to intense US pressure after the price surged to a fresh record of almost $128 a barrel.

The announcement of a boost to output by about 300,000 barrels a day came after a plea by George W. Bush, US president, to King Abdullah of Saudi Arabia in Riyadh.

The Saudis did engage in a wee bit of revenge:

However, 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.

Bloomberg reached broadly similar conclusions, citing industry sources:

“It’s just a token increase but it shows that the Saudis realize just how important it is for the president to not come back empty handed,” said Peter Beutel, president of Cameron Hanover Inc. in New Canaan, Connecticut. “This is about a lot more than oil. The special relationship between the countries is at stake.”….

In another sign of cooperation, Saudi Aramco, the kingdom’s state-run oil company, and U.S.-based ConocoPhillips said they will build and own a 400,000 barrel-a-day refinery in Yanbu on the Saudi Red Sea Coast, to be completed by 2013.

The Telegraph argued that the production increase was not granted to Bush (the Saudis said they made the decision May 10, allegedly to accommodate customers, primarily in the US); the Times of London gave a mixed reading, stressing that the Saudis would pump more only if demand warranted it.

By contrast, the US coverage was decidedly unkind. From the Journal:

The Saudi king rebuffed President Bush’s request for higher oil production, in the latest sign of how U.S. leaders are struggling to combat soaring energy costs that have become a major election-year issue…

The Saudis’ cool response Friday to the volley of American pleas and threats underscores that the U.S., which relies on imports for about 60% of its 20-million-barrel-a-day oil habit, has no near-term prospect of managing prices down. But even as the administration pressed its request for more Saudi supplies, U.S. officials conceded the current level of Saudi production isn’t the prime factor driving today’s oil spike.

And the Times:

Mr. Bush’s visit here was, in many respects, a reprise of a trip he made to the king’s ranch in January, when he asked for an increase in production and was rebuffed publicly by the oil minister and privately by the king. This time, the Saudis again resisted Mr. Bush, while offering at least the appearance of a concession.

Yet for the most part, there was perilous discussion of the underlying difficulties (for instance, the Journal made it sound as if the differences were rooted in conflicting interests regarding petroleum). The Times in passing acknowledged political tensions:

Mr. Hadley told reporters recently that “the Iraq war was a stress” on the relationship. Jon Alterman, a Mideast expert at the Center for Strategic and International Studies, said Saudi confidence in the United States has been “extremely shaken,” over the war as well as what Saudis perceive as Mr. Bush’s lackluster effort on behalf of the rights of Palestinians.

“They’ll be polite,” Mr. Alterman said, “but they’re not really going to put themselves out to help this president.”

Remarkably, it took the Guardian to point out the move that almost guaranteed a cool reception from the Arab kingdom: Bush came straight from celebrations of the 60th birthday celebrations of Israel’s independence. If I were the Saudis, I would have told him to come at a more suitable time. The symbolism couldn’t have been worse. From the Guardian:

Bush’s speech in the Knesset on Thursday lavished praise on Israel and excoriated its enemies – Hamas, Hizbullah in Lebanon, as well as Iran and Syria. But he barely mentioned the Palestinians, who were that same day marking the “nakba” (catastrophe) they suffered as the Jewish state won its independence in May 1948.

It will have confirmed many Arabs in their conviction that the US is irredeemably biased in favour of Israel.

And there was a collective failure to mention another possible strategem of the wily Saudis posited by Lehman: if they can increase production after the US election, they will to gain greater influence. From Shariah Finance Watch:

A key assumption, however, is that the Saudis will increase production after the election to curry favor with the new president and try to influence policy in the Middle East. While Saudi Arabia guards its oil production and reserves as state secrets, the nation has recently announced three long-awaited oilfields have begun production. Lehman estimates those will add 1.3 million barrels a day of capacity, compared with expected global demand growth of 900,000 barrels a day.

If the Saudis open the spigots, in other words, crude prices would drop, just in time for the desert nation to gain influence over whoever takes residence in the White House.

Far-fetched?

“There’s a history of output increases, not exactly coinciding with the election but a few months afterwards,” says [Lehman analyst James] Crandell.