Saudis Say Raise Supply

Immediately following the announcement, oil futures pulled back about 3% but began trading back up near $40. The next significant OPEC meeting will be on June 3rd, and if al-Naimi can persuade the other members to vote for the increase we may see gasoline prices begin to stabilize.

The average price for a gallon of unleaded gasoline is a staggering $1.93; a production increase is not likely to bring that average down much, if at all. At this point, just stopping the rise would be a great relief.

Our economy has been moving along quite nicely but the cost of energy has been chewing into consumers wallets like an angry puppy on a new pair of shoes. The price of gasoline alone has jumped about 10 cents a gallon in just two weeks! Continued upward pressure on oil and gasoline could spell the end to our economic rally.

Thankfully, the Saudis have paid close attention to our recovery and now see the US and the global market at a critical juncture as well. In an excerpt from the April 31st issue of Powerhouse Weekly, I wrote:

''The Saudis seem to understand the economic consequences of choking the world of oil...in the long run, as economies slow, the ability to purchase their product may shrink---simple supply and demand...If you cannot afford it, you cannot buy it...the Saudi's know that once petroleum becomes too expensive, competing alternative fuels will become much more viable. If and when this happens-The oil product will become obsolete-and OPEC is out of business.''

It looks like al-Naimi may be a member of Powerhouse Weekly.. al-Naimi's reason for increasing oil supply: ''We...do not want to see prices rise to the level that they negatively affect the growth of the international economy or the DEMAND for oil.'' Well said Mr. al-Naimi.

Relief could be on the way. Other Gulf States such as Iran and the United Arab Emirates have concurred with the Saudis and believe production increases are warranted. These two states want to not only increase supply, but raise the official OPEC output quotas as well.

With all this talk of late about interest rates being raised to stave off inflation, there has not been enough focus on the number one contributor to higher consumer prices...Energy. If oil prices do come under control (this will only happen with a positive outcome after the June 31 handover of Iraqi sovereignty and a cool off of tension in the region) a huge chunk of inflationary worry will be soothed and the stock market and Allan Greenspan will react accordingly.

Luke Hodgens is the editor of
Powerhouse Profits a conservative investment newsletter. Click here to read more of his cogent analysis."