Saudi Crude Oil Production -- Summer -- Part 1 -- June 30, 2018

Be careful on this page. It is a long note, divided into three parts, parts A, B, and C. The first two parts are re-postings of early posts. The third part is the new post for the day. 

Part 1 of a 2-part series, if I don't forget to post part 2, which will be posted later today or tomorrow.

We're going to start seeing a lot of stories of increased production by Saudi Arabia. I take such stores in the summer with a grain of salt. The question is whether this production will be sustained. Every summer, Saudi production is increased (all things being equal) to meet domestic demand. The Saudis use crude oil to make electricity to run their air conditioners. Part A begins with a September 2, 2015, post:

Part A, from June 2015

Update on Saudi Arabia's production / export -- June, 2015, data. 

Saudi Arabia's crude exports recovered to 7.365 million b/d in June after falling to 6.935 million b/d in May.

Apart from the dip in May, the kingdom's exports have been above the 7 million b/d level since the beginning of this year.

And, following Riyadh's refusal to cut output late last year as oil prices plunged, Saudi production has held above 10 million b/d since March, climbing to 10.564 million b/d in June.

The volume of crude processed in Saudi refineries inside the kingdom fell to 2.099 million b/d in June from 2.423 million b/d in May while the volume of crude burned directly in the kingdom's power plants rose to 894,000 b/d from 677,000 b/d.

Domestic use:

Saudi Arabia's high use of crude oil in power generation, especially during the searing summer heat when demand for air conditioning soars, is well known.

The June volume represented 8.5% of Saudi crude production. But it's not just in Saudi Arabia that direct-burn volumes have been rising.

Iraq's use of crude to generate electricity has climbed sharply over the past two years, with a record volume of 190,000 b/d -- 5.3% of its total official production -- burned in power plants in June.

The direct-burn volume first climbed above 100,000 b/d in July 2013, soaring to 133,000 b/d from 89,000 b/d the previous month.

I'm still not particularly impressed with "10.6 million bopd" production coming out of Saudi Arabia.  I've said this many, many times; see previous posts for background.

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Part B, from July 2015

Saudi's Increased Production Will Not Off Set 

Record Domestic Demand -- 2015

Reposting from July, 2015 (link here)

Updates

July 14, 2015: increase in Saudi production will NOT off set record domestic demand. Platts is reporting:

Saudi Arabia's refinery intake increased by 235,000 b/d or 12% year on year in the second quarter, and total consumption is expected to reach 3 million b/d in Q3.

Refinery intake increased as the new 400,000 b/d Yasref refinery ramped up to full capacity.

The refinery, a joint venture between Saudi Aramco and Sinopec, will contribute to total Saudi crude consumption reaching 3 million b/d in Q3, as demand peaks due to the summer months. 

Original Post

 

This is what the Saudis have achieved with their five-year, $35 billion program to increase production:

The world’s biggest oil exporter pumped 10.564 million barrels a day in June, exceeding a previous record set in 1980, according to data the kingdom submitted to the Organization of Petroleum Exporting Countries.

10.564 million bbls.

From my post of June 30, 2015:

Saudi Arabia, OPEC’s top producer, increased output by 150,000 barrels a day to 10.45 million in June, the most in monthly Bloomberg data going back to 1989. [This increase comes after a $35 billion, 5-year program to increase production. So, after announcing this $35 billion program, Saudi sets a record by increasing output by 150,000 bopd, from 10.30 million = a whopping 1.46% increase. Disclaimer holds.]

So, 10.564 - 10.45 = 0.114
0.114 / 10.45 = 0.0109 = 1% increase month-over-month.

In the most recent data available from the NDIC, North Dakota increased its month-over-month production by almost 3% despite a huge decrease in active rig count and choking back in response to low oil prices and to comply with self-imposed flaring rules and mandated conditioning rules.

Back to Saudi Arabia. We are getting close to the magic 11 million bopd number.

Citigroup Inc. predicts the kingdom will push toward its maximum daily capacity, which the bank estimates at about 11 million barrels, in the second half of 2015.

Also from that post:

In my simple mind, this is my world view:

• numbers coming out of Saudi Arabia can never be trusted;
• Saudi's production fluctuates around 9.5 million barrels of oil;
• at one time, pundits said Saudi's maximum production was 12 million bbls (now it's 11 million bbls);
• this post and the graph at this post tell the story;
• a jump from 10.3 million to 11 million (assuming it's even "real") is hardly earth-shattering especially as off-shore projects are cancelled / delayed;
• Saudi needs to increase production by a million bbls just to meet its own domestic demand -- which is increasing -- and to meet the requirements of the new refineries Saudi is building in-country; 
• Saudi has huge new self-defense expenses and a shooting war to fund; but the biggie is ...
• ... Saudi has just canceled its solar projects for desalination and will require more oil for the energy required for desalination

Goldman Sachs has been talking down oil for months, I think at one time anticipating $40 oil by this time, and hinting at possibilities of $20 oil.

But the graphic that sticks in my mind, in light of Saudi's $35 billion, 5-year project to boost oil production is at this June 5, 2015, link, also linked above. Maybe I'm misreading the graph, but the EIA has Saudi pumping around 12.5 million bopd in the past, and production remains flat, regardless of what the "real" number is.

And then this. This is so cool. I posted that when the numbers come out, analysts will focus on "increased production numbers" but will not emphasize why Saudi needs to increase production. Bloomberg mentions this early in the story:

“Saudi Arabia is still pursuing a market-share strategy,” Torbjoern Kjus, an analyst at DNB ASA in Oslo, said by phone. “They need more oil domestically for air conditioning in the summer, so they could choose to either produce more or reduce exports. Clearly they choose to produce more.”

I've always gotten a kick out of that. Folks go ballistic over the flaring in the Bakken, and yet Saudi uses its most precious commodity -- oil -- to run air conditioners. Wow.

From the Bloomberg article:

Global oil demand will accelerate next year to 1.34 million barrels a day compared with 1.28 million in 2015, led by rising consumption in emerging economies, according to the report. Supply growth outside OPEC will slow to 300,000 barrels a day in 2016 from 860,000 a day this year with the gain concentrated in the U.S.

Setting us up for $200 oil.

By the way, Saudi's strategy to give oil away at $50/bbl:

The group sees “a more balanced market” in 2016 as demand for its crude strengths and supply elsewhere falters.

OPEC said it expects expanding oil consumption to outpace diminished output growth from rival producers such as U.S. shale drillers, whittling away a supply glut. The strategy is taking time to have an impact, with crude prices remaining 46 percent below year-ago levels and annual U.S. production forecast to reach a 45-year high.

Spin. 

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Part C, from June 2017 With Updated Data

Iraq Eating Saudi's Lunch: From June, 2017

Link here. Spreadsheet below -- Iraqi crude oil exports to the US.

Iraq eating Saudi's lunch: from Bloomberg --  Iraq is driving up crude oil exports to the U.S., the world’s second-biggest import market, just as there are signs Saudi Arabia is honoring a pledge to restrict such deliveries, according to tanker-tracking data. See EIA data here.

When I last posted this data, imports went from 9 million bbls to 17 million bbls from 2014 to early 2017. This works out to an 88% increase over three years.

Now, updating the data, taking us from early 2017 to most current data, Iraqi imports into the US continue to increase, this time from 17 million bbls to 25 million bbls (all figures, per month).

This works out to another 47% increase, but this was over one year, not three years as before.

We'll come back to all this in late autumn to see how Saudi's summer production kept up with domestic demand.