Market Overview

ATTENTION: Platts' John Roberts On Oil Shocks In The Middle East


Benzinga is switching to a new feed - check this blog post to find out more.

Welcome to Zing Talk, where Benzinga brings you the biggest names and brightest minds from Silicon Valley to New York City.

Direct Download

Subscribe in iTunes

I'm Matthew Boesler. Joining me on the line from London is John Roberts, energy security specialist at Platts. How are you doing today, John?

How are you doing today, John?

John Roberts: I'm doing fine. Nice load of work on hand.

Indeed. Let's start with Libya. We're starting to see reports that U.S. and European military advisers have arrived in the opposition-controlled eastern part of Libya. It appears that Colonel Qadhafi is losing ground. If that is the case and the prospect for a drawn out conflict is narrowing, how soon could we see that lost oil output back online?

John Roberts: We should be able to see it back online within a few days. The assumption always has to be that there has been no significant physical damage to the facilities. We were told that some of the tribesmen had taken some of the interior oil fields--as they put it--under their protection. I don't think we've had particular reports of damage to facilities. I suspect, though, we'll be wanting to see what the loading facilities are like before we can judge just how badly--or just how long--Libyan exports might be interrupted.

Reuters is reporting a quote from an opposition leader out of Benghazi who said, "The oil deals with foreign companies that are legal and to the benefit of the Libyan people, we will keep." Do you see this as an issue in facilitating the swift return of the multinationals to reopen for business in Libya?

John Roberts: We're in a very odd position because if Libyan exports are going out, then who is banking the money that comes in? Until we know what kind of an administration there is in Benghazi, or anywhere else, in other parts of Libya that have thrown off Colonel Qadhafi's yoke, we simply do not know how the business side of Libya will be conducted.

I think there's one point to say: Libyan national oil company technicians are pretty proficient people. We should be able to find a way of making sure that the oil flows, because, after all, any regime will want to receive income.

Saudi Arabia assuaged fears in the oil markets Thursday when it was reported that they were in talks with refiners to step in and make up for lost production in Libya. What does that mean both in terms of the quality of crude they're able to provide to replace that and also to the extent to which they have to eat into their reserves, which, as we know, make up a large portion of the entire world's reserve of oil?

John Roberts:I don't think it makes too much of a problem in terms of eating into their own reserves. They've got quite significant spare capacity at the moment and they should fairly straightforwardly be able to cover a glitch in supplies from Libya.

The quality issue is going to be rather more difficult. Libya produces some extremely high-quality light crude, and it will be difficult for the Saudis to readjust their export slate to ensure that comparable quality crude enters the European markets, and in particular, is available to Italy.

But, the bottom line is oil is fungible. If refiners have to do some upgrades and make some changes, they will. It won't be easy, and there will be a degree of mess, but it's containable.

In the Gulf, of course, we're seeing popular uprisings in Bahrain and Yemen. What are the implications there for Saudi Arabia and Kuwait?

John Roberts:Saudi Arabia is the most interesting issue of all. The Libyan revolt proved that money simply cannot buy off opposition. The proportion of GDP that Libya receives in the form of oil revenues is one of the highest in the Middle East, and also in sheer number of dollars it ranks high, with something like $5500 coming in for every man, woman, and child. That's a lot of cash that the government can control and distribute as it sees fit.

Saudi Arabia is rather different. Per capita GDP is rather higher than Libya, around $16,500. Pretty good level. What we don't know are the disparities of wealth.

We're not talking about disparities of income, because there was, 10 or 15 years ago, a significant issue in that people who had a decent income but did not own their own houses found that it was very expensive to live, whereas an earlier generation, nurtured on very good housing grants and mortgages in the sixties and seventies, found that they could live comfortably on a comparable income because they owned the houses. So it's very interesting that one of the moves King Adbullah has done has been to say that he will be reviving the provision of easy mortgages.

I think he understands that to have stability, you need a stable society. One of the ways you get a stable society is making sure people have the most basic thing of all, which is housing that they feel the own and is not a whim of fate.

There's another point that makes Saudi Arabia potentially more stable. We often almost joke about the fact that there are four or six thousand princes--no one knows how many--in Saudi Arabia. Think of it a different way. That means there are an awful lot of princes spread over a very sprawling country.

It means the royal family, unlike the Shah of Iran thirty-odd years ago, has its ear to the ground. It can tell when people are discontented. That gives it a chance to take preemptive action in the form of economic bonuses, improvements, and changes to society.

But whether it is understood from Libya that may mean real political change as well as improving the economic conditions of the Saudis, that remains to be seen.

Initially in Bahrain, we saw violence. Now that's died down and the regime is looking to negotiate with protesters. Obviously they have a majority Shia population in Bahrain whereas the regime is Sunni. To what extent will we see a spillover into Saudi Arabia if Shias there feel empowered to do the same?

John Roberts:I think Bahrain and Saudi Arabia are genuinely different issues.

The Shia in Bahrain are the majority. The most encouraging thing about their protests was they weren't identifying themselves as Shia. They were dividing themselves as Bahrainis. They're saying, we are Bahrainis and we want a stake in our society.

The second encouraging thing was that the government went to the brink, opened fire brutally, and then quite unexpectedly pulled back and re-instituted negotiations. Now, obviously, one hopes that negotiations will lead to a peaceful outcome that is satisfactory to both sides, but it is still going to be difficult because the entrenched rule of a single family whose loyalty has so far had to depend on essentially the loyalty of only a minority of the community, i.e., the Sunnis, now has to be replaced by a loyalty that comes from the entire community, i.e., including the two-thirds or more who are Shia. So there are going to have to be some really difficult concessions made by the al-Khalifa family if Bahrain is to develop into a stable society.

But, the one thing that does change, if you get a stable society in Bahrain in which the Shia feel they have a real stake, then you could see some quite positive change throughout the region as a whole including Saudi Arabia, precisely because all the demands that we're seeing all the way from Morocco right the way through to the east, to Iran, to Iraq, the loose of concept of protests in Saudi Arabia, the big protests in Yemen, the whole revolutions in Tunisia and Egypt, and much of the society in Libya has been about ordinary day-to-day things. We want to have a bigger stake in government. We want to have a better economy. We want to have a better life than we have been getting from various badly-run governments in the past.

These have not been revolutions fomented by Islamists, militant or otherwise. They have not been revolutions that have condemned government. They've not been sufficiently anti-Israeli. They're about the normal, day-to-day sufferings of ordinary life. So those things can be put right.

Now, across the region, we're seeing these dictatorial regimes falling. Mubarak is out in Egypt, Qadhafi appears to be on his way out in Libya. As you noted, the Saudi regime is a massive ruling family. Will this sort of size allow them to institute change in a relatively more stable manner than in some of these other countries we've seen up to this point?

John Roberts: I think we have to be very cautious when considering the phrase, "regime change." In practice, regime change in Saudi Arabia would mean the end of the ruling al-Saud dynasty that has, one way or another, been involved in Saudi affairs for almost 300 years now.

What we have to look at is whether the Saudi royal family are sufficiently flexible to adapt and how that adaptation might take place. In the past, the king stated in March 1992 when he introduced the basic law which in effect was the closest that society has ever had to a constitution, he stated point-blank, "Democracy is not appropriate to our region."

The first thing would be if the Saudis were to make it clear that they did not continue to hold to that standard, that they were not anti-democratic, and that they were, if not yet ready to introduce full-blown democracy, ready to accept the concept of constitutionalism, that in effect, even governments, and even individual government members and officials, are bound by the law.

This would actually be as great a revolution in the Middle East as the revolution we've seen in the streets. We have never really had accountability of government to people in the region in any major, long-lasting form. My guess is that the first step one might see in Saudi Arabia is a greater willingness of the government to be accountable to other national institutions.

Right, and it's something that perhaps isn't as costly for Saudi Arabia, and so maybe it won't be as difficult for them as it has been in Libya and Tunisia and Bahrain and Yemen, for example, should it come to that.

John Roberts: Yes, I think you're right. And I think that the peculiar thing is, and this may sound strange, the very age of Abdullah may be a help.

When you're an old man, very often you actually want to be an old man in a hurry. You haven't got much time to get things done, and if you want to change your country because you think your country needs change, then you have to act. Abdullah has always seemed to be a ruler who has wanted to preside over a significant degree of change rather than simply accept the status quo.

Very good. And real quickly, where do you see oil prices going in the short to medium term?

John Roberts: Well, so long as there is continued civil war, which is in fact what there is in Libya, and so long as Libyan crude is off the market, oil prices would be likely to go up.

I'd make one point, which is that the real worry is if you have prolonged conflict, then the chances of there being a deterioration in either the oil fields themselves or their export facilities becomes much greater, and we know what several months of damage and oil field strikes did to Iranian capacity and what ten weeks of oil company strikes in Venezuela did to Venezuela's capacity. They damaged it literally irretrievably.

Now, we're nowhere near there in Libya at the moment, but if the situation were to continue, not just for days, but for weeks, then I think you would find all bets were off concerning what the ability of Libya would be to recover from this in the short run, and therefore, the market will be likely to respond fairly aggressively to such a major producer being off the market for a matter of weeks, not days.

Well, those are some things we're going to be watching going forward. John Roberts, energy security specialist at Platts. Thank you for coming on the program today, John.

Posted-In: Benzinga PodcastMovers & Shakers General


Related Articles

View Comments and Join the Discussion!

XIAPEX Authorized in the European Union For Dupuytren's Contracture; Pfizer, Auxilium Have Marketing Rights

Trading Tomorrow's Auto Sales (F, GM, TM, HMC, NSANY)