ALGERIA - The Oil Market Perspective.

Saudi Arabia, the world's biggest oil producer and exporter which benefited immensely from record crude oil prices last year, has sent signals in recent weeks that it is committed to keeping crude oil prices at about $50/b - down $27/b from the summer peak which shook consumers around the world. The indications came in typically cryptic fashion for the Saudis.

In Tokyo recently Saudi Petroleum and Mineral Resources Minister Ali al-Na'imi said his country's policy was to maintain "moderate prices". The previous week, on a stop in New Delhi, he vetoed holding an emergency OPEC meeting to discuss propping up prices after WTI briefly dropped below $50/b, the lowest level in nearly two years.

The events which propelled WTI to $78.40/b on July 14, 2006, then dragged prices down again, were beyond the control of any single producer. Still, Saudi Arabia, by far the largest oil producer within OPEC and sets the group's agenda, is seeking to avoid a repeat of the increase in prices while trying to put a floor beneath them.

The spike in oil prices last year was felt profoundly in the US. As gasoline prices rose above $3/gallon, or 79 cents a litre, US consumers cut their spending elsewhere, tamping down profits in retail, travel and other industries. US automakers were hurt as consumers fled from large vehicles to smaller ones, which have historically been the specialty of Japanese automakers.

Ford on Jan. 25 said 2006 had been the worst year in its history. The recent slide back to $50/b for WTI - or about $2 for a gallon of gasoline - has eased the pressure on the US economy, quieting talk that oil prices and the declining housing market would lead to a recession.

The Saudis appear to be rediscovering that painfully high energy prices take a profound toll on the global economy, which in turn reduces demand for their oil. But other motives are at work, too, including the Saudis' desire to restrain Iranian ambitions in the region (see news7-IranUS-EU-Feb12-07).

How much influence the US has exerted is an open question. US Vice President Dick Cheney met with King Abdullah of Saudi Arabia in Riyadh in November, but The New York Times in January reported that Cheney's office would not say if oil was discussed.

The White House has been supportive of Saudi energy policy, and President George W. Bush and his father, George H.W. Bush, the former president, are close with Prince Bandar ibn Sultan, the Saudi national security minister and a former ambassador to the US. Although Saudi officials say their oil policy is based on market considerations and not political ones, the meeting in November led to renewed speculation that the kingdom might be tempted to check Iranian ambitions by pushing oil prices down.