Locator: 48499SAUDI.
Back to the future.
Saudi cash crunch, 2016. Link here.
And, there was another Saudi cash crunch, in 2023. Tag: SC-23. Saudi Arabia in a world of hurt, June 15, 2023, link here.
Saudi cash reserves: link here.
Fred. St Louis Fed. Link here.
To balance the budget:
Locator: 48492SAUDI.
Long stand-alone post later.
Saudi crude oil production: everyone follows. Irrelevant.
Saudi crude oil exports: relevant.
One screenshot for now, from FRED:
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New England
Re-posting as a reminder.
Locator: 48490LDCS.
RBN Energy: tech giants increasingly turning to natural gas to power data centers. Simply put, New England bet on the wrong horse.
The pace of announcements for planned data centers accelerated in 2024 and has continued to gather steam in 2025, with natural gas-fired power plants emerging as a frequent choice, along with nuclear power, to provide the around-the-clock electricity that large-scale data centers want and need. In today’s RBN blog, the first in a series, we’ll detail plans by several well-known energy firms to construct new gas-fired plants that would produce electricity specifically for data centers.
Let’s start with some data-center basics. As we discussed in Storm Front, a data center (see photo below) is the home for hundreds or even thousands of networked computers that process, store and share data. Data centers — many of them owned and operated by tech giants — are among the most energy-intensive building types, consuming up to 50 times the energy per square foot of a typical commercial office building, with electrical demand at larger facilities ranging from 100 megawatts (MW) to 2,000 MW. (For perspective, as we noted in Just Can’t Get Enough, a city the size of Lubbock, TX, — population 267,000 — only requires about 700 MW.) Demand for data centers has grown exponentially with the expansion of artificial intelligence (AI) tools like ChatGPT and Perplexity, which require far more computational power — and energy — than conventional Google searches.
Locator: 44303B.
A reader sent me this earlier this morning:
My not-ready-for-prime-time reply:
Excellent.That makes a lot of sense.That was a nice way to state it: triggering event.Lots and lots of issues but the question I should have asked in my original note (see link above), what was the triggering event or tipping point?That really, really makes sense. Saudi needed to protect Brent $80-floor at all costs and when SecEnergy Jennifer "no clue" Granholm said she wouldn't refill the SPR this year, and, in fact, she said, it would take years to refill -- the Saudis must have gone ballistic. Especially coming from "no clue" SecEnergy.I remember the day when Granholm said the volume of the SPR was measured in bbls of oil per day (bopd). Wow. LOL.Again, thank you for that note.
Locator: 44295B.
Tag: “surprise production cut” by Saudi Arabia, 2023 = SC-23 (tag)
Updates
April 4, 2023: for OPEC, the time was right to move the markets, experts say. Hart Energy.
April 4, 2023: A reader sent me this earlier this morning:
Excellent.That makes a lot of sense.That was a nice way to state it: triggering event.Lots and lots of issues but the question I should have asked in my original note (see link above), what was the triggering event or tipping point?That really, really makes sense. Saudi needed to protect Brent $80-floor at all costs and when SecEnergy Jennifer "no clue" Granholm said she wouldn't refill the SPR this year, and, in fact, she said, it would take years to refill -- the Saudis must have gone ballistic. Especially coming from "no clue" SecEnergy.I remember the day when Granholm said the volume of the SPR was measured in bbls of oil per day (bopd). Wow. LOL.Again, thank you for that note.
Later, 11:12 p.m. CT: a reader opines.
Later, 10:59 p.m. CT: Janet Yellen says the "surprise cut" is "an unconstructive act."
Later, 5:10 p.m. CT: some argue the “surprise cut” was directed against “short sellers.” That would certainly go a long way to explain this action by OPEC.
Original Post
Perhaps the most interesting "energy question" this month: why the surprise OPEC cut? The Arab culture, much like the Chinese, tend to move slowly, cautiously, wanting no surprises.
But the OPEC cut was a complete surprise. The "cut" doesn't even seem to have been coordinated. Almost as if there was some back-room, back-channel decision making. Obviously it had to have had the approval of the Saudi prince-heir apparent.
It certainly was not in the best interest of the Chinese, with whom the Saudis have been growing closer.
It will be interesting:
The big question, in hindsight, how did no one see this coming. Did anyone see any op-ed pieces suggesting that Saudi Arabia was likely to cut prices? If so, I certainly didn't see them. There were plenty of articles and tweets of just the opposite: that by driving season this summer, US demand for crude oil would exceed supply. This "cut" -- based on those analyses -- suggests that OPEC is thinking just the opposite.
The one unintended consequence I am most interested in is how quickly US shale operators can take advantage of this "surprise." Most analysts, it seems, suggest that US shale operators cannot respond like they did in the original Bakken boom, 2007 to 2014. I'm not in that camp. I think we will be surprised, but it might take a year just because the oil companies have drawn down so much since the pandemic.
The second issue is the price of gasoline, and if it increases significantly, how the Biden administration responds. As we know, the Biden policy is definitely "no more drilling."
The third issue, of course, is what happens in California. It seems it will be easy for Governor Newsom to suggest that US oil companies will take advantage of this "surprise," raise prices at the pump, and gouge the California driver. It might be difficult for the average Californian to accept that when they actually know what's going on.
The fourth issue, what will the Fed do? Will the sudden change affect JPow's actions and/or words?
So, the first bit of analysis, superficial as it is:
I don't think the decision to cut production was "anger-driven." Even if directed against short sellers, that doesn’t mean it was driven by “anger.”
I think it has more to do with the concern about a global recession, driving down oil demand, and driving down prices. Some have already said this "surprise cut" was to save $80-Brent at all costs. Saudi Arabia would want to get ahead of that. For Saudi Arabia it's a win-win. If there is no global recession, nothing has been lost by cutting production; and, if there is a global recession, they will have been smart to get out in front.
The "surprise cut" does seem to give Russia some breathing room. I don't see how the "surprise cut" has hurt Russia's position. It's very possible Russia and Saudi Arabia coordinated on this from the very beginning, some weeks ago.
And as stated above, it certainly was not in the best interest of the Chinese, with whom the Saudis have been growing closer.