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Saudi Arabia Assesses Oil Options As Saudi Arabia prepares to host a summit of oil producers and consumers Sunday, it finds itself without its usual leverage over oil markets. Concerned about the long-term impact of soaring prices, Saudi Arabia is limited in its ability to do much about it. The world's largest oil supplier does have two blunt weapons in its arsenal if it wants to try to beat down soaring oil prices to assuage the growing outcry over pump prices in world capitals. It can open its spigots wider to put more crude on the market, and it can sharply discount that crude to get refineries to lap it up. The question is whether even a temporary surge of discounted Saudi oil would be enough to reverse the most bullish oil market in decades. And if so, would the price remain lower for long? Some industry analysts say that such a strategy, if it is employed, might not have a lasting effect and could even risk pushing prices higher if Saudi Arabia doesn't find willing customers for the additional oil at a time when demand is beginning to erode. This is especially so given that most of Saudi Arabia's excess capacity consists of heavy and high-sulfur crude, which is harder to refine into high-end products like gasoline, and therefore is much less in demand. An effort to artificially bludgeon prices down, they say, could magnify the very concerns that have helped drive prices up in the first place -- above all, the worry over the reliability of long-term supplies. It would also mean delving into Saudi Arabia's already thin spare capacity, which has been another goad for upward prices. One thing that nearly all sides agree on: the market isn't hankering for additional oil. Saudis May Be Strapped for Oil, Near Full Capacity

Can Saudis back output promise?  It won't be enough for Saudi Arabia to say it's going to boost production at the gathering of oil producers and consumers this weekend, it'll have to prove it -- and that might not even be enough to quell the world's record-high crude-oil prices. Saudi Arabia, the world's largest producer of oil, is expected to announce on Sunday that it will raise its production level by 200,000 barrels per day starting next month to lift total daily production to 9.7 million barrels per day, according to media reports. Representatives from Saudi Arabia and other major oil producers have been widely quoted as saying that there is no actual global shortage in oil supplies and some have even said that demand is slowing, so it's a bit of a struggle to make sense of the expected move. World oil demand was seen at 86.6 million barrels per day for the first quarter of 2008, while world oil supply in the first quarter was at 87.2 million barrels per day, according to data from the International Energy Agency. In the bigger scheme of things, a Saudi oil output increase can be seen as "necessary, but not sufficient," Sieminski said. Prices will "start to recede when the markets become convinced that demand growth is slowing down and supplies are starting to pick up." The Saudis are right in saying there is no current shortage, but the markets are worried about balances 3 to 5 years from now, he said. "They want to do everything they can to at least put a cap on prices," said Vera de Ladoucette, senior director of Middle East Research at Cambridge Energy Research Associates. It's not really in the Saudis' long-term interest to have prices that high, she said. "That might kill demand and trigger research for non-oil solutions for transportation." Capital costs have risen dramatically, more than doubling in three years, she said. The global supply and demand balance for oil is tight and while there is no need for more oil, crude inventories are lower than they were a year ago and spare capacity is limited, said de Ladoucette, who's based in Paris. So "you have basically all the elements to justify high prices, but not that high."

Oil: Fundamentals Trump Rhetoric from Saudis, Politicians, Barron's The much ballyhooed Saudi oil summit came and went this weekend with a pledge from the hosts to increase daily production by 200,000 barrels, which just isn't enough supply to bring prices lower. (Notably, 200,00 barrels is the same amount as production lost at a Shell installation in Nigeria after rebel attacks last week.) This weekend also brought a Barron's cover story declaring oil to be in a bubble that's ready to pop. After an overnight rally in London, oil prices were recently declining in New York as the dollar rallied - a stronger dollar being just one factor Barron's cited as a possible killer of the oil boom. But for me, the story recalls the old saying: "If 'ifs' and 'butts' were candy and nuts, everyday would be Christmas." Also, bubbles rarely peak when 'everyone' is calling for their demise, as Henry and I discuss in the accompanying video. When reading and hearing the chatter about the "oil bubble" about to pop, consider another old saying: "Markets can stay irrational longer than you can stay solvent," as was the case with tech stocks in the 1990s or housing earlier this decade. Finally, $100 oil isn't exactly cheap, as Barron's concedes. With all the talk about speculation driving the market and politicians recommending all sorts of bizarre and anti-market "solutions," the bottom line is still the bottom line: Oil supply is not keeping up with demand and no amount of rhetoric from OPEC or U.S. officials can change that fundamental truth.

Why Brazil Isn't Ashamed to Exploit Its Oil One reason for Mr. Gabrielli's optimism is last year's discovery of the offshore Tupi field, which is said to contain between five billion and eight billion barrels of black gold. Another, equally important reason is that, according to Mr. Gabrielli, neither environmentalists nor Brazilian politicians have raised concerns about exploiting oil in the waters off the Brazilian coast. That's quite a contrast with attitudes in the U.S., where offshore exploration and development has been all but shut down save in the Gulf of Mexico. One company official explains the difference by saying that Brazilians understand the importance of energy to their future, while Americans do not. I have another theory. And mine fits the pattern of resource development – or lack thereof – all over the Western Hemisphere. It comes down to this: Where government has the property right, restrictions on development tend to be low. But when the private sector is the owner, environmental concerns blossom. Exhibit A is Petrobras. Not only did Mr. Gabrielli say there is no appetite for stopping offshore projects in his country. He went further. "Brazil has one of the freest and most investor-oriented regulation in the world. Even freer than the United States of America," he said, referring to the climate for oil exploration. That may be so, but it would be interesting to know why, given Brazil's prominent embrace of socialism. It could be that the country is changing. After all there is now private-sector competition in the oil industry. Yet it is also worth noting that the Brazilian government has a 58% controlling stake in Petrobras's voting shares and 32% of its total shares. This means that some of Petrobras profits go straight to the government's bottom line, giving the politicians more money to spend on bribing their constituents. At least Petrobras is a well-run, publicly listed company that has to answer to shareholders. Pemex, Mexico's state-owned oil monopoly, has a history as a notorious polluter yet is seemingly exempt from political pressure to clean up its act. Mining provides an even better window on this contradiction. Bolivia, Venezuela and Cuba all boast aggressive, state-owned mining operations. Yet neither the nongovernmental enviro-movement nor the political class utters a peep to object.

Quest for Oil: Where to Look Is the Question The oil industry is turning up the heat on Congress to open up more federal land to oil and natural-gas drilling, arguing that will do more to cut energy prices than new taxes on industry profits. But environmentalists and Congressional Democrats opposed to that tack are firing back with a new challenge: Drill what you have. For years, political and environmental obstacles have limited the oil industry's access to large swaths of U.S. territory, most notably the Arctic National Wildlife Refuge in northern Alaska. Democrats have tended to support restrictions on access to sensitive lands and focused on other ways to drive down prices: reining in speculators; punishing the OPEC oil cartel; and funding research on alternative-energy sources, possibly via a windfall-profits tax on oil companies. Industry backers, including many Republicans, say the answer to high prices is increased supply and that the way to do that is to drill in areas now off-limits. Now, voter anger over soaring gasoline prices is shoving this perennial dispute to the top of Washington's energy agenda. On the New York Mercantile Exchange, benchmark crude for July delivery fell $1.88 Friday to settle at $134.86, near its all-time high. Last Monday, the average retail price for a gallon of regular unleaded was $4.039, according to the Energy Information Administration. A recent Gallup poll shows 57% of Americans support opening up new territories to drilling, while a Wall Street Journal-NBC News poll conducted this month shows 59% of Americans saying Congress should take the lead on responding to high gas prices. Although high prices are giving the oil industry a new opportunity to make its case for greater access to domestic petroleum, the industry's allies in the Democratic-controlled Congress have so far had little success. Last week, a House panel voted against lifting a decades-old ban on drilling in the outer continental shelf. The industry and its backers say such arguments reflect a fundamental misunderstanding of the oil industry. Companies don't know how much oil is under the lands they lease, so they buy up large swaths in the hope that a fraction will work out. Much of the area that isn't producing, they say, doesn't have oil or gas in commercially viable quantities.

Why Is Oil So High? Pick a View People who have spent their careers tracking the ups and downs of the global oil markets say their compasses are spinning. Oil prices rise for reasons they cannot quite fathom, and where prices will be a year from now has become, literally, anybody’s guess. Those uncertainties have left regulators, oil companies and suppliers uncertain whether increases in supply or declines in demand will affect prices as they have in the past. Some wonder whether the market is broken in some way, creating a bubble of artificially expensive oil. “This whole industry has absolutely been turned on its head,” said Stephen Schork, who edits an energy newsletter. For the first time since oil drilling began in the 1850s, the price has climbed for seven consecutive years. Old rules of thumb and assumptions that once helped traders foresee the direction of prices no longer seem to work. For example, since the oil shocks of the 1970s, a weak American economy used to mean lower prices. But during a period of sluggish growth in this country the price of oil has kept rising, to about $135 a barrel. Energy experts offer radically diverse predictions for the coming year, ranging from $60 oil to $200 oil. Beyond that, however, there is broad disagreement about the role of speculators in oil markets — particularly a new breed of financial investors, including pension funds and hedge funds, who view oil and other commodities as just another way to make money, like stocks, bonds and real estate.

• Oil’s Perspective on What’s Behind the Energy Crisis

China Shocks With 18 Percent Fuel Price Rise; Oil Falls China will announce a surprise increase of about 18 percent increase in retail gasoline and diesel prices effective from Friday, the first increase in eight months, two industry sources told Reuters. "Yes it's real. They are going to raise the prices. We were told to wait in the office to receive the official notice," said a fuel sales official with top refiner Sinopec Corp. The sources said gasoline and diesel prices will rise by 1,000 yuan ($145.5) per metric ton. China last raised pump fuel prices in November. The move in November took many market watchers by surprise as Beijing has repeatedly vowed to rule out "near-term" price increases to fight decade-high inflation. Oil prices fell $3 a barrel on Thursday on the news because demand from China has been one of the main factors driving oil prices to a record near $140.

Deals With Iraq Are Set to Bring Oil Giants Back Four Western oil companies are in the final stages of negotiations this month on contracts that will return them to Iraq, 36 years after losing their oil concession to nationalization as Saddam Hussein rose to power. Exxon Mobil, Shell, Total and BP — the original partners in the Iraq Petroleum Company — along with Chevron and a number of smaller oil companies, are in talks with Iraq’s Oil Ministry for no-bid contracts to service Iraq’s largest fields, according to ministry officials, oil company officials and an American diplomat. The deals, expected to be announced on June 30, will lay the foundation for the first commercial work for the major companies in Iraq since the American invasion, and open a new and potentially lucrative country for their operations. The no-bid contracts are unusual for the industry, and the offers prevailed over others by more than 40 companies, including companies in Russia, China and India. The contracts, which would run for one to two years and are relatively small by industry standards, would nonetheless give the companies an advantage in bidding on future contracts in a country that many experts consider to be the best hope for a large-scale increase in oil production.

Israel shows abilities for Iran strike A large Israeli military exercise this month may have been aimed at showing Jerusalem's abilities to attack Iranian nuclear facilities. In a substantial show of force, Israel sent warplanes and other aircraft on a major exercise in the Eastern Mediterranean early this month…How Iran would retaliate if it comes to war, Iran Would Respond to Any Attack by Israel With `Heavy Blow,' Cleric Says

• The Israeli Air Force (Video 04/27/2008 ):The Israeli air force ? the best in the Middle East ? has to prepare for anything says one of its officers, because if Israel loses just one war, it will cease to exist. Bob Simon reports