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Saudi Energy Minister Says Kingdom Is World’s Energy ‘Shock Absorber’

Saudi Energy Minister Khalid Al-Falih | Reuters
Saudi Energy Minister Khalid Al-Falih | Reuters
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Saudi Energy Minister Says Kingdom Is World’s Energy ‘Shock Absorber’

Saudi Energy Minister Khalid Al-Falih | Reuters
Saudi Energy Minister Khalid Al-Falih | Reuters

Oil prices have risen at the opening of trade Monday’s trading session after Saudi Arabia, the world's largest oil exporter, said it will take the adequate countermeasures to any sanctioning hinted. Later on, Saudi Energy Minister Khalid Al Falih said that the Kingdom remains committed as a key supplier to global energy.

A speculation loomed over the trading floor that prices could be affected by any move the Kingdom might take, but Falih's comments reassured stakeholders.

Added to the official and affirmative statements issued on the Kingdom responding more aggressively to any action taken against it, Falih reiterated that the Kingdom and world economies are closely tied to each other.

Oil prices would be "easily in the three-digit range" without Saudi Arabia's spare production capacity serving as a cushion for the market, he said

Beyond Saudi Arabia’s oil supply, the Kingdom plays a large role in global trade and investment and is home to projects that need to be funded in billions of dollars.

The minister said many factors could affect global oil prices, but Saudi Arabia and other major producers would continue to work to protect the market from any shocks.

"We expect and demand that Saudi Arabia's efforts be acknowledged," Falih said at the India Energy Forum by CERAWeek in New Delhi. "These supply disruptions need a shock absorber. The shock absorber has been to a large part Saudi Arabia."

He later told reporters on the sidelines that Saudi Arabia, which is currently producing about 10.7 million bpd, would raise its crude production next month.

Falih said Saudi Arabia has invested "tens of billions" of dollars to build its spare production capacity.

"Given the disruptions that have taken place, oil would be easily in the three-digit range had it not been for the extra efforts the Kngdom had done," Falih said.

"Saudi Arabia has proactively, deliberately and responsibly invested in its spare capacity."

The minister has said Saudi Arabia can produce 12 million bpd at will, and with current production around 10.7 million bpd, that leaves about 1.3 million bpd of spare capacity.

He said Saudi Arabia would act as "the central bank of the oil market" to help keep supply and demand in balance.

More so, several sources said last week that Saudi Aramco plans to supply Indian buyers with an additional 4 million barrels of crude in November.

India, the world's third-largest oil importer, is suffering from a combination of rising oil prices and a declining local currency. The retail price of gasoline and diesel in India is at record high levels and the government has been forced to cut fuel taxes to ease consumer burden.

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Venezuela Depreciation Risks Reversing Years of Inflation Gains

People walk through a market in the low-income Petare neighborhood, in Caracas, Venezuela November 16, 2024. (Reuters)
People walk through a market in the low-income Petare neighborhood, in Caracas, Venezuela November 16, 2024. (Reuters)
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Venezuela Depreciation Risks Reversing Years of Inflation Gains

People walk through a market in the low-income Petare neighborhood, in Caracas, Venezuela November 16, 2024. (Reuters)
People walk through a market in the low-income Petare neighborhood, in Caracas, Venezuela November 16, 2024. (Reuters)

Currency depreciation is set to reverse years of declining inflation in economically beleaguered Venezuela, public and private sector sources say, as foreign currency sales fall short of demand and the socialist government keeps tight-lipped about its strategy.

After years of hyperinflation and amid broad US sanctions, in 2022 the administration of President Nicolas Maduro began using orthodox policies including credit restrictions, lower public spending, a fixed dollar-bolivar rate and central bank sales of billions of dollars in foreign currency to tamp down consumer prices.

Maduro, who will begin his third term in January after a disputed election that the opposition and international observers say he lost, has said his government defeated inflation of more than 100,000% and prices in 2024 are similar to those in 2014.

But the administration's policy has now changed.

After more than nine months of the exchange rate being held at 36.5 bolivars to the dollar, the government in mid-October allowed the currency to float, beginning a depreciation that has seen the bolivar slide to about 45 versus the dollar, according to central bank figures.

Analysts say the over-valued currency made imports cheaper than locally-produced goods, impacting Venezuela's private sector and helping push prices up by 12% in nine months.

The untethering of the exchange rate will also put upward pressure on prices in the final quarter of 2024, financial and business sources said, with analysts predicting in a LatinFocus survey the rate will end the year at 50 bolivars to the dollar.

Year-on-year inflation was 25% through September. Official figures for October have not yet been released.

"For nine months the depreciation of the currency was zero while inflation was rising, which exposed problems in the exchange scheme," said economics professor and consultant Daniel Cadenas, who added the market depends on oil income. "For the system to function, there needs to be a growing source of exchange and that's not possible."

The government had predicted internally that inflation would close the year at 30%, two sources with knowledge of the projection said, but depreciation could increase the figure and local analysts have estimated inflation between 35% and 40%.

"There has been a necessary adjustment in the exchange rate that will have an impact on inflation," said Asdrubal Oliveros, head of local think tank Ecoanalitica. "The government has understood it needs to devaluate."

REDUCED CENTRAL BANK SALES

Vice President Delcy Rodriguez, who until recently also served as finance minister, told an event with business people last month that there must be "reflection" about the use of foreign exchange.

"We should all be concerned with how foreign exchange is used in imports. It is a subject the Finance Ministry is reviewing," she said. "We need to take care of foreign exchange because this is a blockaded country and there cannot be cheap exchange for hair dye."

Rodriguez's comments are the only ones made on the subject by the government since devaluation began. Neither the central bank nor the communications or finance ministries responded to requests for comment.

Private sector demand for cheap foreign exchange increased during the nine months the rate was held, even as the quantity of dollars being injected into the market by the central bank was reduced, sources said.

In July the bank was offering some $800 million, but by October that figure had fallen to $400 million, according to calculations by local consultancy Sintesis Financiera.

The central bank did not respond to a question about the reduction.

"The strategy in exchange policy is not going ahead," a government source said, without giving further details.

Food and medicine companies in Venezuela are allowed to pay for some of their goods with foreign currency, while other companies are given central bank promissory notes indexed to a specific exchange rate.

Two private sector sources said many businesses are eating through their inventories in the face of import difficulties.