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Saudis have a plan for high oil prices

Feb. 25, 2011 at 4:06 PM   |   Comments

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RIYADH, Saudi Arabia, Feb. 25 (UPI) -- Saudi Arabia is aware spiking oil prices are diplomatic and economic liabilities, a political science professor at the University of Vermont said.

"They know their value to the world as the central bank of oil," Professor F. Gregory Gause III said, the Los Angeles Times reported Friday.

Essentially, oil priced at $100 per barrel, which occurred Wednesday this week, can be very profitable, but it can also be debilitating to the global economy and cause such a disruption that demand slackens.

As such, Saudi officials have spent much of the week reassuring world leaders they can make up the difference in oil lost to the world market by the uprising in Libya.

On Thursday, Saudi Arabia said it had held "active talks" with oil companies about increasing output, the Times said.

"The fear premium is back and we're now talking real oil, real disruptions," said Energy Intelligence Group Chief Economist David Knapp.

"Libya is a significant source of petroleum products and natural gas going across the Mediterranean," he said.

Libya supplies 2 percent of the world's oil, but the low-sulfur oil produced in Libya is hard to replace.

Nevertheless, Saudi oil can be processed by refineries that handle Libya's "sweet" crude oil, the Times said.

Saudi Arabia has spent billions of dollars upgrading production readiness at idle oil fields that creates a spare capacity in the country of 3.5 million barrels of oil.

As a member of the Organization of Petroleum Exporting Countries, Saudi Arabia is limited to production of 8.05 million barrels a day, but analysts say it has produced 400,000 barrels per day over its quota since October to help keep prices in the $70 to $90 per barrel range.

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