A potentially huge story from the New York Times.
Saudi Arabia, the world's biggest oil exporter, is planning to increase its output next month by about a half-million barrels a day, according to analysts and oil traders who have been briefed by Saudi officials.
The increase could bring Saudi output to a production level of 10 million barrels a day, which, if sustained, would be the kingdom's highest ever. The move was seen as a sign that the Saudis are becoming increasingly nervous about both the political and economic effect of high oil prices. In recent weeks, soaring fuel costs have incited demonstrations and protests from Italy to Indonesia.
Saudi Arabia is currently pumping 9.45 million barrels a day, which is an increase of about 300,000 barrels from last month.
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The loss of 1 million barrels per day of Saudi production between 2005 and 2007 was one of the single most important factors in the run-up in world oil prices over the last several years. One theory of the cause behind the earlier drop was that the Saudis' magnificent Ghawar oil field had entered into decline, in response to which the Saudis made a big increase in drilling effort to develop alternative sources within the kingdom. The Wikipedia Oil Megaprojects database calculates 1 million barrels/day in eventual gross new capacity from Saudi projects scheduled to begin producing this year. The Calgary Herald yesterday reported:
Saudi Arabia will start pumping from its new 500,000 barrel-a-day Khursaniyah field within the next month, a board member of state oil company Saudi Aramco said.
An alternative explanation for the earlier Saudi production cutbacks, discussed in my recent paper on oil prices, is that the decline in the price-elasticity of petroleum demand in recent years could have made lower production levels in the Saudis' economic interest. I attributed the decline in the U.S. elasticity to the very low share to which energy expenditures had fallen relative to GDP by 1998, but noted that with the recent dramatic increase in prices, that share had risen substantially and we should expect to see a corresponding return in the elasticity to the higher levels seen historically. There is abundant evidence that U.S. consumers are now making significant responses to higher oil prices.
Whatever the explanation, if the Saudis do produce 10 million barrels a day next month, I would expect it to have a significant impact on near-term oil prices.
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This article has 15 comments:
Altendorf
Altendorf
Asian Refiners Say No Thanks to More Saudi Crude
www.reuters.com/articl...
GORILLA
speculator
theinvestingspeculator...
Thanks for the thoughtful post.
Yes, Milton & Rose Friedman, Boone Pickens and Matt Simmons were (...and are) very prescient people. It's too bad Milton's not around right now to bring some sense to our current energy dilemma.
Interestingly, though, our country still has quite alot of relatively inexpensive domestic oil and gas reserves. Like the Bakkens, Barnett, Marcellus, Haynesville, and the near-in Gulf Coast, where McMoran is making huge new finds at shallow depths.
As you may know, I still believe our present energy shortfall is largely political in nature. A self-imposed Congressional boycott, if you will, contrived by the Greens, designed to wean us off "killer" oil (...if it doesn't break us first).
Personally, I am both repulsed by this debate and the potential loss of freedom it entails. In this regard, I would refer you to the recent "Joe, American" post on You Tube. It is quite well done, and sums up my mood perfectly.
Pursley
Russia produces more oil than Saudi Arabia so we should be asking the Russians for more oil production, not Saudi Arabia. And the reason why Russia produces more oil than any other country in the world is because geologists there understand that oil comes from the mantle and not biological organisms: oilismastery.blogspot..../
Pursley
I owed you one for turning me on to Thomas Gold and inorganic oil. Thanks again, and you're welcome.
I liked Gold's examination of meteors as evidence that the composition of rocks in oil formations were everywhere on earth AND in the universe, but what really got me was his discussion of satellite pictures showing naturally occurring oil slicks on waters where NO fossils existed. The clincher was getting Hubbert himself to admit geologists weren't even trained to understand such phenomena one day over lunch.
As for "Joe, American," that's EXACTLY the kind of positive PR we need to challenge the hammerlock the Greens now hold over the "Know Nothing" politicians in Washington. It almost brought a tear to my eye, it was so well done!
1. 500kbrl/day is the maximum field capacity. If they only start pumping from it next month there is no way they can bring the output to the maximum that same month if ever. They also need to fill up all pipes and storage volumes before they can really output all oil they pump.
2. Many older fields there seam to be in terminal decline. By the time Khursaniyah starts flowing to export it will need to offset that decline as well. We do not know if it even will be able to do that. Even if it does the decline will go on, so this peak in production won't be sustainable.
3. Even if they add 500kbarrels a day it will be still sort of those 10mbarrels a day.
Altendorf