Updates
July 5, 2011: Another one agrees -- Saudi may not be able to make up shortfall.
Some major investment banks are still betting that oil prices will grow next year despite an emergency injection of crude on world markets from the U.S. and other countries.July 3, 2011: Filloon -- Saudi can't make up the Libyan shortfall with either the right kind of oil or in a timely manner.
Independent oil analysts say prices still could head lower this year. But some think IEA's announcement speaks volumes about its expectations for world oil supplies.
"I think it's an admission from them that Saudi Arabia might not be able to produce enough oil on its own" to meet increased world demand, analyst Stephen Schork said.
The Bakken continues to be my favorite shale play in the United States. Its oil dominated resource is well placed in an environment of world demand slowly outstripping supply. The 60 million barrels of oil released to cover lost Libyan supply shows how close these two variables are. Saudi Arabia has the ability to meet this demand, but could take months to come on line. This increased Saudi supply is mostly sour crude, which also creates worry as to refining capacity. Now that OPEC is siding with Iran, the price of oil is headed upward. My estimates have it at $100/barrel, but $110 by year end may be closer to correct.
June 24, 2011: Well so much for that opinion by "anonymous" that Saudi was telling us the truth when "they" said "they" could make up the shortfall in loss of Libyan oil. This story pretty much puts the end to that argument.
The loss of Libyan oil output since February represented a greater disruption to global oil supply than the aftermath of Hurricane Katrina in 2005, said Richard Jones, the deputy head of the International Energy Agency.It appears if any oil is released from the US strategic petroleum reserve it will be sent to Europe. America's storage tanks are more than full.
Jones, speaking in Reuters' Paris bureau, said that the initial disruption to oil output in Libya happened at a "fortuitous" time for European oil refiners as many were closed for maintenance.
"Now we're going into the summer driving season, those refineries which have returned to operation are about to ramp up their production."
Jones said the market was facing a possible shortfall of 1.8 million barrels per day for the remainder of June and 1.7 million for the next quarter.
June 21, 2011: Deep in this story a reference to the fact that Saudi has not been able to replace the loss of Libyan oil. I remember back in March folks saying Saudi could make up the difference. It's almost July and it's being reported the Libyan loss is still palpable.
June 17, 2011: John Hofmeister is concerned about three regions in the western hemisphere: Venezuela, Mexico, and the Gulf of Mexico. He did not mention Alaska.
He says China's consumption will go from 9 million to 15 million barrels in four to five years. He said India's consumption will go from 4 million to 7 million barrels.
Interestingly, he seemed to confirm what I already thought: the Saudis have not yet made up the Libyan shortfall promised back in March, 2011, but I could have been mistaken. My impression is that the Libyan shortfall has not been replaced with light, sweet oil.
On CNBC, Friday, June 17, 2011.
June 16, 2011: IEA raises forecast on five-year global demand by 700,000 bbls of oil per day.
The IEA, during its medium-term report, urged OPEC to raise output levels. The IEA claimed global demand remains strong and increased its five-year global forecast by approximately 700,000 bpd.Let's do the math. Scroll down to the original post below where it says:
Saudi Arabia would boost output to 10 million barrels per day (bpd) in July, which Goldman Sachs' global head of commodities research Jeff Currie said would leave only 500,000 bpd spare.Re-stating the obvious: if Saudi raises production to 10 million bbls of oil per day, GS calculates that Saudi has only another 500,000 bpd to spare. Now the IEA raises its forecast for global demand by another 700,000 bpd.
I can't make this stuff up.
By the way, I thought Saudi had already raised its output to meet the deficit caused by the Libyan "thing" which the administration says is not covered by the US War Powers Act.
June 15, 2011: Saudi oil terminal vulnerable to terrorism.
When al-Qaida suicide bombers tried on Feb. 24, 2006, to blow up Saudi Arabia's Abqaiq oil processing facility, arguably the world's most important petroleum hub, it was taken as a sign of strength that internal security had foiled the attack. Secret U.S. State Department cables obtained by WikiLeaks and shared with news organizations show otherwise. Even though 70 percent of Saudi Arabia's oil exports flow through the Abqaiq facility, Saudi security forces were woefully ill-prepared to defend it, investigations into the attack found, according to the cables."Anonymous" has trouble envisioning Saudi execs sitting around a table making decisions to bluff investors.
Original Post
Link here.
Saudi newspaper al-Hayat reported Saudi Arabia would boost output to 10 million barrels per day (bpd) in July, which Goldman Sachs' global head of commodities research Jeff Currie said would leave only 500,000 bpd spare. Currie and his team have warned for months about overstated Saudi output capacity.
"If you get up to (10 mln bpd), you start to really create a very tight market relative to spare capacity," he told the Reuters Global Energy and Climate Summit in London.
"But the question that's more appropriate is when do you get to 9.5, when do you get to 10? Because when you start to look out over the horizon, their ability to create more flexibility in spare capacity increases tremendously."
Peter Oosterveer, group president for energy and chemicals with global engineering giant Fluor Corp (FLR.N), recently met with executives in the Middle East, and returned with a feeling that Saudi Arabia's capacity was not as large as some estimates.
I don't believe the Saudi words. I believe actions. A few weeks ago one of the service companies said that the Saudis said that they were increasing their rig count significantly. I give that higher credibility, but will be interested to see the rigs working.
ReplyDeleteWatch the rigs, not the lips.
anon 1
I need to do a stand-alone post on this issue. It's not just rigs and production, but also port facilities, ocean tankers, time to transit, open seaways, receiving ports, and the "right" kind of oil.
ReplyDeleteAnd, you are correct. It starts with production and "they" say many of the Saudi fields are now requiring air injection. Not a good sign.
In the game of "which direction is the price of crude headed" every player has staked out a position based on their own particular circumstances.
ReplyDeleteMy experience is that if one has expressed a view one way or the other then there is a tendency to look for and highlight that which supports ones view and downplay other facts and circumstances. Hence we se a gs analyst with long term bullish view issue a short term bearish forecast. And currie isnt saying Saudi can't ramp up 1m bbl per day. Rathr he states (obviously correctly) that with a 1m increase then the Saudi spare capacity is 1m less than it was before. For this bold assertion of the obvious said analyst probably brings down a 7 figure salary. The art of being an analyst is to take a side and then hedge so that no matter what happens investors still value the advice. Was the advice bullish or bearish or both? Short term or long term and what is the difference since neither is uniquely defined.
I don't have the vaguest idea where crude is headed. My view on the very narrow topic of Saudi ability to put 1m per day additional product on the market is that it makes no sense to me for Saudi to mislead about their ability. The reason is very simple, if Saudi can't deliver then they have made the price situation worse and they would be better served if they said nothing or stated that capacity is max if that is the case. Saudi are ruthless in looking out for what they perceive to be in their interests. They dont strike as being stupid.
The analyst also has a position to defend and is at least one step removed from having all the facts at his disposal.
"My experience is that if one has expressed a view one way or the other then there is a tendency to look for and highlight that which supports ones view and downplay other facts and circumstances."
ReplyDeleteAbsolutely correct. I have stated that many times.
JRR Tolkien perhaps said it best: "we all have our myths."
My "myth" is that Saudi does not have the excess capacity (oil, the "right" oil, the port facilities, the tankers, the time, political will, etc.) to meet global demand.
I had planned on doing a stand-alone post on the subject, but it is starting to get too far afield of the Bakken. So, I'll probably let it rest.
I just have a hard time picturing a group of Saudi oil ministers sitting in a conference room and saying "ok, here is the ticket. We will put out a false claim that we can/will put more crude on the market to the tune of 1m bbl per day and if we can't follow through then nothing adverse will happen . As I said, Saudis are a lot of things but stupid isn't one of them.
ReplyDeleteA couple of points. First, the gist of the article linked (that civillian infrastructure is vulnerable to attack with potentially devastating consequences to the economy) applies to ANY and ALL major infrastructre installations worldwide. And it isnt ony terrorism as witnewss the Japan reactor. And, the response from those responsible for infrastructure [protection is generally along the lines of : we are doing the best we can with the available resources.
ReplyDeleteFurther, you missed my point on the saudi capacity actions. I did not mean to convey that saudis are above generating, propagating or even allowing a false impression to exist about a fundamental factor of their oil business (spare capacity). My point was and is that if the saudis are technically unable to deliver on the spare capacity, then the consequences are far more devastating to saudi interests than if as some believe saudi is unable to add capacity. In other words, saudi is not acting out of some high ethical or moral principle, they are acting on an assessment of their own best interests. Saudi is not above making a mistake but this seems to me to be a no brainer.