Saudi Arabia Annnounces They Will Produce More Oil
Posted by Nate Hagens on June 22, 2008 - 10:23am
CNN is reporting that Saudi Arabian King Abdullah and the country's petroleum minister Ali I. Al-Naimi, at their Jeddah Energy Meeting, have announced an increase in production from 9 mmbpd to 9.7 mmbpd effective July, and will increase investments in oil projects which will allow for 12.5 mmbpd by the end of the year.
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Dave Cohen on June 22, 2008 - 1:08pm
I'm going to reference my Saudi Arabia Rides to the Rescue (ASPO-USA, last week). (Next post)
Saudi Arabia is offering greater volumes of Arab Light (33.4° API, Sulfur 1.77%) and Arab Extra-light (37.2° API, Sulfur 1.15%) in the June/July production hike. Arab Light crude is called "sour" because of its high sulfur content. Refiners who can process this oil will take it only if Saudi Arabia lowers the asking price. US refiners see extra Saudi oil offer [as] too pricey tells the story (Reuters, June 16, 2008).
"They [the Saudis] can offer all the oil they want. The fact is they want too much for it. There's cheaper oil out there right now," said a trader with an independent U.S. oil refiner.
Saudi official selling prices for the United States currently list Arab Light ARL-OSP-N at a nearly $3 per barrel premium to comparable U.S. domestic crude grades like Mars MRS- -- even before the cost of shipping oil from Saudi Arabia is taken into account.
Traders said they would be willing to increase purchases of Saudi crude, if prices were lowered.
Asian refiners like China's Sinopec, who are operating at a loss, are "choosy" about the the oil they buy in order to keep their costs down (Reuters, June 16, 2008). Many "simple" refiners in Asia would prefer a crude mix that includes more medium or heavy oil, not the pricey Arab light Saudi Arabia is offering. They also want these lower quality grades at a reasonable price.
Although margins for processing the kingdom's heavier grades have plummeted, Aramco has also cut the discounts it offers on these grades to their lowest levels this decade, while keeping prices of its lighter grades at relatively high levels.
In addition to keeping oil off the market in 2007, the Saudis have raised prices on all of their crude grades beyond what the refining market can currently bear. The Kingdom obviously cares very deeply about the detrimental effects on global economies of the 2008 oil price shock.
(read the article to get the links)
So, I see no details in any of the reports from Jiddah that the Saudis have discounted the crude they are selling. Aside from the 200,000 b/d -- from Khursaniyah, I believe -- increment in July, the only real move the Saudis could have made to lower oil prices would have been to lower oil prices. Thus the refiners would accept the new sour crudes, which are costlier to process, thus increasing throughput. But I see no evidence that the Saudis discounted their crude oil.
From the AP.
Al-Naimi also said that the kingdom was willing to invest to boost its spare oil production capacity above the current 12.5 million barrels per day planned for the end of 2009, reversing previous statements that the country would not go beyond that figure.
"In addition, we have identified a series of future crude oil mega-increments totaling another 2.5 million barrels per day of capacity that could be built if and when crude oil demand levels warrant their development," he said.
Given the fact that some of the fields cited (above in this thread) will not support the "mega-increments" Al-Naimi speaks of, and the fact that the Saudis have absolutely no intention of expanding capacity after 2011 (after Manifa), I believe he is lying through his teeth. To make sure you get my point, some synonyms are prevaricate, deceive, stray from the truth, palter, etc.
And when someone like Al-Naimi says that the "market is in balance", that should mean in an ideal world that it is never necessary to draw on stocks. But that quibble aside, the "market is in balance" at a price. Today, that price is $134.62/barrel. Which means that the quantity demanded at this price is equal to the supply + whatever draws on inventories are required to fill the gap that Al-Naimi says does not exist.
Now, at $134.62/barrel, the quantity demanded, at least in the OECD countries, has gone down some -- not a lot -- because of the high price. If the price were $100/barrel, the quantity demanded would be higher. If it were $80, it would be higher still. Most of the world's poor oil consumers have already been priced out of the market. There is a lot of unsatisfied demand. The market is always "in balance."
But of course the oil minister is hoping we won't notice any of this. And people generally being what they are, most of them will not notice.
-- Dave
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