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jeff rubin

A flame from a Saudi Aramco oil installion known as "Pump 3" is seen in the desert near the oil-rich area of Khouris, 160 kms east of the Saudi capital Riyadh, on June 23, 2008.MARWAN NAAMANI

Exactly how high do oil prices have to rise before Saudi Arabia will start using it supposed three million barrels of spare capacity?

Does Saudi Aramco intend to stay on the sidelines watching Brent crude prices - already $120 per barrel - climb as high as $200 (U.S.) per barrel, while blaming speculators for distorting market fundamentals?

Or is the emperor simply wearing no clothes? Is Saudi Arabia, and by extension, OPEC, already tapped out, barely struggling to make up for the loss of 1.3 million barrels of oil exports from a now non-producing, war-torn, Libya?

Even less credible than the country's official estimates of its reserve capacity is the notion Saudi Arabia could bring down today's triple-digit oil prices but instead chooses not to

No country in the world is more dependent on a healthy global oil market than Saudi Arabia, which pumps out nine million barrels a day. And it is no mystery a further increase in oil prices will lead to another oil-induced recession and a subsequent collapse in world oil demand and prices.

If the House of Saud is having trouble buying off its increasingly rebellious populace when triple-digit oil prices are giving OPEC its first trillion-dollar revenue year, what are the royal kleptocracy's chances of survival when oil prices plunge back to $40 in another oil price-induced global recession?

The real reason Saudi Arabia can't respond to today's growth-threatening rise in oil prices is exactly the same one as their failure to respond to President Bush's personal plea in 2008 for more production during the first encounter with triple digit prices. Saudi Arabia has nothing more to pump, save for very limited amounts of heavy sour oil that most of the world's refineries can't handle.

As that reality becomes more apparent, expect world oil markets to become more and more skittish.

If the loss of Libyan production has thrown the global oil market into triple-digits, what happens if Nigerian production takes a haircut during the course of its federal election like it did the last time the country went to the polls?

Or what about another supply disruption from any number of Middle Eastern oil producers whose streets fill every day with protestors demanding regime change?

The world is a pretty dangerous place when you no longer have excess capacity to offset disruptions.

Even if there are no further supply shocks, who is going to be pumping the fuel to meet another two million barrel a day increase in global oil demand that occurred last year.

If triple-digit oil prices can't get Saudi Arabia to pump out its fabled 12.5 million barrier a day peak capacity, what can?

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