An Oily Predicament

So, last week, Saudi Arabia continued to assure the world (and the US) that they could maintain oil export capacity to handle reduced OPEC exports from Libya in order to keep the world economy from flagging due to high oil prices, and to avoid another oil crash.

Two Saudi officials told Reuters on Tuesday that the extra rig activity would maintain rather than increase the kingdom's oil capacity. It completed a multi-year expansion in 2009 meant to boost spare capacity by more than 3 million barrels per day.

"It's not to expand capacity. It's to sustain current capacity on new fields and old fields that have been bottled up," one of the officials said.

State-run oil giant Saudi Aramco met leading oil service companies including Halliburton over the weekend to discuss plans to boost the country's rig count this year and next to 118, from around 92 now, Simmons & Co analyst Bill Herbert said on Monday.

Saudi Arabia increased its output to around 9 million bpd this month to help compensate for disruption of supply from fellow OPEC producer Libya.

That was last week.  This week, OPEC actually can't help with oil prices.

OPEC ministers on Wednesday brushed aside worries that inflated fuel prices will slow economic growth, saying there was little more they can do to rein in $120-a-barrel crude.

Iraq's Deputy Prime Minister for Energy Affairs Hussain al-Shahristani, a former oil minister, said OPEC had done all it could to calm the rally.

"All that OPEC can do is provide the market with the oil it needs and it is doing that," he told reporters at a Paris oil conference. "We have not seen any slowdown in growth."

Oil on Wednesday traded above $123 a barrel for Brent crude, its highest since August 2008, prompting another alarm call from the International Energy Agency, oil watchdog of the industrial economies.

"Oil at $120 or more has an effect on economic activity. We have seen similar levels during times of economic slowdown if not recession," its Deputy Director Richard Jones told Reuters in Dubai.

So, this should be fun.  OPEC is blaming speculators, the IMF is blaming Asian growth, and the world is blaming OPEC in return.  Meanwhile, West Texas Intermediate crude is pushing $110 a barrel (and Brent Sea crude is pushing $125.)

Oiled up, indeed.