It was to be a swap felt around the world a plan privately discussed by the world's largest oil exporter and the globe's biggest consumer to take the heat out of $120-plus (Dh440) oil prices.
In the weeks leading up to the failed meeting earlier this month of the Organisation of Petroleum Exporting Countries (Opec), US and Saudi officials met to discuss surprising the market with an unprecedented arrangement: exchanging urgently-needed high-quality crude oil stored in the US emergency reserve for heavier, low-quality oil from Saudi Arabia, according to people familiar with the plan.
The idea involved shipping some of the light low-sulphur, or ‘sweet,' crude out of the US Strategic Petroleum Reserve (SPR) to European refiners, who needed it after the war in Libya cut off shipments of its premium crude varieties coveted for making gasoline and diesel.
In return Saudi Arabia would sell its heavier high-sulphur or ‘sour' crude at a discount back to the US to top up the caverns that hold America's emergency stocks.
It was a striking suggestion, one that would have demonstrated Washington's readiness to put the SPR to extraordinary use and Riyadh's willingness to work creatively with consumers to quell high prices.
But it did not make it past the drawing board, four sources familiar with the talks confirmed. The sources disagree on which country proposed the plan. Two said it fell apart because Riyadh was not willing to subsidise European or US customers by discounting its crude prices below market value.
An Obama administration official said Washington did not see a benefit to changing the composition of the US reserves.
The swap idea illustrates a recently deepening engagement between Saudi Arabia and the US on oil affairs under President Barack Obama, and shows how high the stakes were ahead of the meeting of the Organisation of Petroleum Exporting Countries on June 8 in Vienna.
With gasoline prices topping $4 a gallon in many parts of the US, Obama was seeing his support ebb in opinion polls, just as the White House was beginning to focus on the election.
The Saudis were concerned about the health of the global economy with oil prices surging above $100 a barrel. Riyadh knew high prices, while good for short-term income, would cut fuel demand over the longer term.
Washington had pressed Saudi Arabia to boost oil production at least twice ahead of the Opec meeting that ended in failure, sources told Reuters.
After war broke out in Libya and its oil output fell, the Saudis complied with the initial request, but they weren't happy when European refiners didn't jump to buy their crude, even a ‘special brew' of lighter quality, an Arab official said. "We need someone to take our crude. We don't just want to store it," the official said.
Industry sources described a ‘difficult' Riyadh meeting a US delegation held last month with Saudi Oil Minister Ali Al Naimi.
"They were told, ‘If you're going to find us extra refineries that are asking for demand, we'll supply that,'" the Arab official said.
Deputies from the US Energy and Treasury departments also visited Riyadh to make the case for stepped-up oil production, a source close to the Saudi government said, although the timing was unclear.
Jonathan Elkind, Principal Deputy Assistant Secretary for Policy and International Affairs at the Energy Department, did not attend that meeting.
From / Gulf News