Saudi Oil-Rig Use Soars as Obama Pressed on SPR Release: Energy Markets http://www.bloomberg.com/news/2012-02-2 ... rkets.html
Saudi Arabia is deploying the most oil rigs in four years as it prepares for possible shortages caused by tension with Iran, giving President Barack Obama one less reason to answer calls to curb prices by releasing supplies from America’s emergency reserves.
The number of rigs used in the desert kingdom more than doubled in January from a year earlier, the biggest annual increase on record, data from Houston-based Baker Hughes Inc. (BHI) showed. As much as 1 million barrels a day of Iranian crude exports may be lost as the U.S. and Europe tighten sanctions against President Mahmoud Ahmadinejad’s government over its nuclear program, the International Energy Agency said Feb. 10.
March 1 (Bloomberg) -- Christoph Eibl, founding partner of Tiberius Asset Management, talks about outlook for gold and oil prices. He speaks with Erik Schatzker on Bloomberg Saudi Arabia used 49 rigs in January, compared with 48 in December and 23 a year earlier.
Saudi Arabia used 49 rigs in January, compared with 48 in December and 23 a year earlier.
Brent, the benchmark for more than half the world’s oil, rose to a 10-month high Feb. 24, propelling U.S. retail gasoline to the highest ever for this time of year. Democrats urged Obama last week to tap the nation’s Strategic Petroleum Reserve for the 18th time since 1985. Iran’s buyers in Asia and the European Union are cutting purchases to comply with sanctions, raising demand for alternatives at a time when supplies are disrupted in Yemen, Libya, Syria and South Sudan.
“There’s a desire in Saudi Arabia and the U.S. to control price volatility and reassure the market,” Sadad al-Husseini, founder of Husseini Energy consultancy in Dhahran, said in a phone interview on Feb. 29. That “is why Saudi is pumping near record levels. Releasing oil from the SPR would be one of the dumbest things to do. They are just saying that to try and bring prices down.” He is a former executive vice president for exploration and development at state-run Saudi Arabian Oil Co.
Saudi Arabia (OPCRSAUD) used 49 rigs in January, compared with 48 in December and 23 a year earlier, Baker Hughes, the world’s third- largest oilfield-services provider, said Feb. 7. The nation employed an average of 47 rigs in the fourth quarter, up from 39 in the previous three months. Rig use peaked at 57 in August 2007, as the country implemented a program to boost capacity to 12.5 million barrels a day.
The kingdom is producing 9.8 million barrels a day and has about 2.5 million barrels of spare capacity, Saudi Deputy Oil Minister Prince Abdulaziz bin Salman said during a visit to India last week, the same amount as Iran’s exports. The country boosted output to 10.047 million in November, the highest level since at least 1980.
‘Responding to Demand’
“The kingdom is responding to demand for more crude, and part of this demand is related to upcoming sanctions on Iranian oil,” Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA in London, said by e-mail on Feb. 27. “What could motivate a use of strategic stocks is the lost volumes of Syria, Yemen and South Sudan combined. Here you face actual supply disruptions, so the U.S. and the IEA may decide to release oil to bridge the gap as Saudi continues to pump more.”
China, Japan, India and South Korea, which together bought 59 percent of Iran’s oil in the first half of last year, are deepening ties with Saudi Arabia before U.S. sanctions against financial institutions against the Islamic republic take effect at the end of June. Chinese Premier Wen Jiabao, South Korean President Lee Myung Bak and Japanese Foreign Minister Koichi Gemba visited Riyadh this year to strengthen relations, while India asked for more oil on Feb. 23. tons more oil from Saudi Arabia next year.
‘No Need for Concern’
“The market is very much well supplied and there’s no need for concern,” Saudi Arabia’s Prince Abdulaziz said on Feb. 23 in New Delhi. “We have demonstrated to our friends here how much excess capacity there is today and how much capacity will be there in the future.”
Saudi Aramco is bringing the Dammam field, its oldest, back on stream this year, according to the Economist Intelligence Unit. The heavy crude is a “good” replacement for Iranian oil, said Caroline Bain, a senior economist at the London-based EIU.
“One explanation for reviving fields like Dammam is that the Saudis are currently overestimating their spare capacity, so they are drilling more as it looks like they may actually need to use it,” Bain said. “We estimate them to have about 3 million barrels a day spare currently, but perhaps the amount that’s readily available would be quite a lot less than that.”
“Releasing oil from the Strategic Petroleum Reserve would be, at best, a short-term benefit,” Senator John Barrasso, a Wyoming Republican, said in a statement Feb. 28. “This purely political move would cause more harm than good.”
“Saudi drilling is mostly independent of the use of the SPR because they act on different time horizons,” Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc. in London, said Feb. 27. “New rigs are going to have an effect in the medium-to-longer term, while the SPR is a short-term tool. The Obama administration has used the SPR before, so, if the circumstances were right, I wouldn’t rule its use out.”
The extra oil that they are exporting is heavy crude which most refineries can not refine or even they do not want to refine for technical and cost reasons. So I am thinking; are they selling this unwanted oil at a huge discount? Is there a link that can show me what the spread between Brent and Arab heavy crude?
I read somewhere that Saudis are thinking to burn this oil to generate power instead of selling with a huge discount to global market.