U.S., Saudi maneuver to contain Iran oil market threatSaudi Arabia has repeated publicly it would prime its pumps to meet any shortfall in exports from fellow OPEC member Iran.
Industry sources told Reuters on Friday the Kingdom had boosted exports to just over 9 million barrels per day last week, compared with an average of about 7.5 million bpd in January, although it was not clear if the export numbers were the start of a longer Saudi supply addition or a temporary uptick.
"Those export numbers are very reliable but they're only for a week so they don't tell you whether or not they're going to sustain these levels," said one industry source.
If Riyadh were to maintain exports at 9 million bpd it would imply record volumes from OPEC's leading producer of 11 million bpd, up more than a million bpd from last month. Saudi currently is using about 2 million bpd domestically.
Other sources at oil companies who buy Saudi crude said that Riyadh was offering extra oil both in addition to existing long-term contracts and on a one-off "spot" basis.
AirlinePilot wrote:The probability that this "extra" oil came from storage is IMHO very high.
I don't think they could go to 15MMBD with their current infrastructure, nor that the extra oil is coming from Ghawar. Saudi Arabia announced their maximum production was 12.5 MMBD. And much of the new production is heavy sour crude, not the light sweet stuff that Ghawar or Libya produce. The increase in heavy sour crude produced is widening the gap between light sweet crude, which is in high demand and short supply, and heavy sour crude, which is in low demand and high supply.misterno wrote:well that means reuters is acknowledging a new record in oil production in KSA which is 11MMbd
who knows maybe that can push it to 15MMbd if they want to. Interesting times. And all that talk about "Ghaffar oil field hit the peak" goes down the drain. Or maybe they had new oil fields producing to make up for the loss production in Ghaffar. Who knows?
Saudi Oil Output Nearing Capacity LimitTop oil exporter Saudi Arabia is nearing its comfortable operational production limits and may struggle to do much to make up for shortages that arise from new sanctions imposed on Iran by the West, Gulf-based sources said.
The kingdom, now pumping just under record rates of 10 million barrels per day, has poured billions of dollars into its vast oil fields, which on paper should ensure it has the ability to ramp up to 12.5 million bpd.
Long-standing oil policy by Riyadh, the heavyweight in the Organization of the Petroleum Exporting Countries (OPEC), sets aside some 1.5 million bpd as protective spare capacity.
But industry sources said pumping anywhere near the declared production capacity might involve extracting heavy crudes the market might not want. It would also be difficult to sustain higher rates for lengthy periods. "There is very little unused capacity in the Gulf," said an oil official in the region.
"Saudi Arabia could comfortably manage an extra 500,000 barrels a day or so and, if pushed, could go up to 11 million (barrels a day)." A steady rate beyond 10 million bpd would offer immediate relief to world oil markets, but it would take the kingdom's production to untested levels. Saudi officials are confident, however, of achieving higher flows. "Saudi Arabia can easily make 1 million to 1.5 million (barrels per day) available," a Saudi source said about output beyond current volumes.
Sour Demand for Saudi Crude Leads to Output CutIf only more people liked sour products (think crude, not candy), maybe Saudi Arabia wouldn't have taken an axe to its oil output.
Much to cash-strapped consumers' dismay, the Saudis last weekend revealed that they slashed crude oil production due to what they see as a glut in supplies -- despite painfully-high gasoline prices.
The main reason behind the move, and confusing price action, appears to be a lack of global appetite for the sour blend of crude oil produced by Saudi Arabia and the intense desire for the light, sweet blend produced by wartorn Libya.
“There is a glut of supply of the type of crude that Saudis produce, but nobody wants: heavy crude,” said Phil Flynn, an energy analyst at PFGBEST and a FOX Business contributor.
In an effort to offset the losses from the crisis in Libya, Saudi Arabia sold 2 million barrels of a special blend of crude that attempted to mimic its high-quality counterpart. Unfortunately for the Saudis, buyers were scarce. Saudis produce what’s known as Arab heavy crude, a more sour blend of oil that is harder for Western refiners like Italy’s Eni (E) to clean. There is a greater need for the very high quality light crude oil produced by war-torn Libya.
So it’s not that demand for oil worldwide is too low. It’s that there isn't much desire for blends of crude the Saudis produce.
Saudi oil supply increase widens sour price gapSaudi Arabia's solo move to boost output is widening the price gap between undersupplied light crude and abundant lower-quality oil, and will force producers to offer their heavy grades to customers at deeper discounts.
Lower relative values for high-sulphur crude hurt most members of the Organisation of Petroleum Exporting Countries (Opec) and benefit refiners that have the upgrading capacity to process heavy oil into light fuels. Brent, a light sweet crude benchmark, touched a five-week high above $120 a barrel yesterday. The discount for Dubai crude, the Middle East heavy sour oil marker, widened to $7.67 a barrel.
"The sweet-sour spread is going to widen because we are going to have to cope with more heavy crude in a market that needs light sweet grades," said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp.
Capacity
Saudi Arabia's spare capacity is mostly of sulphurous crude, of little use for simple refiners who need lighter grades to substitute Libya's high-quality output.
"There is too much Arab Heavy," said a trader with a refiner that buys Saudi crude in northeast Asia. "Even before the Opec meeting, I have been hearing that they had been offering more barrels to some end-users."
OilFinder2 wrote:This is ALWAYS the lame excuse cited by peakers for any increase in Saudi production. Even if it were true, it tells you that production sometime in recent the past was HIGHER than advertised, and the oil was simply put into storage rather than sold and shipped. Ultimately it makes NO DIFFERENCE in a longer-term rolling average of Saudi production: They might have produced 1 million more bpd sometime last year or the year before than was advertised, and are shipping it out only now.
Sure i could be, but claiming its an Excuse is once again a complete mischaracterization of my post. Refute the idea OF.
I consider your premise possible also, but when weighing the two against the backdrop of present Saudi trends and projects, I think my thoughts concerning Storage are slightly more plausible than claiming some sort of record production in the face of their older field decline rates.
Your CONJECTURE they did it recently is YOUR opinion and unprovable.
We have no idea how long it has taken them to fill that, it might be one year and it may be ten, We have NO WAY OF KNOWING. It makes your argument fall to pieces. A more reasonable assumption would be that this storage has probably been built up over time ... Edit: Yanbu upgrade plan was for 12mb crude storage. No links yet for progress of that upgrade. Was begun in 2010.
AirlinePilot wrote:Ras Tanura has some RIDICULOUS amount of storage. Several links I have read say it is north of 30 million barrels. Even if its only at 20% capacity they could do this for a few YEARS and we might not know it.
An Excuse? For WHAT?
OilFinder2 wrote: Every time Saudis increase production some peaker/doomer will say, "Oh, they're just taking it out of storage." It's not just you, it's ... half this forum. And 3/4 of every peaker on the planet.
misterno wrote:So no matter what Saudis produced or claimed to produce, peak oil or not, WWIII or not, oil price will and should definitely go up. Unless of course the paper demand is outlawed which is what the world needs.
AirlinePilot wrote:Ras Tanura has some RIDICULOUS amount of storage. Several links I have read say it is north of 30 million barrels. Even if its only at 20% capacity they could do this for a few YEARS and we might not know it.
misterno wrote:Remember; during the price run up to $147, there was a quote from Saudi's saying" we even have a full tanker in the ocean and we were trying to divert to any possible bidder but there was none". This makes sense because they were trying to take a huge profit from the high oil price but they were not able to sell their product because THERE WAS NO DEMAND. In other words, the price was pushed by PAPER DEMAND. Had the price been pushed by PHYSICAL DEMAND, Saudis would be able to sell their product.
So here is my question; how is it possible to bring down the oil price with physical supply when the oil price was not pushed by physical demand but paper demand?
It is impossible. No matter how much you produce and create extra supply in the market, the paper demand which is options/futures/forward/short sale/ would create ARTIFICIAL DEMAND INFINITELY. I read articles about options predicting th oil to be $250.
misterno wrote:We all know that the oil peak price of $147 was reached not because of demand boom but because of speculation. Right now, we have the same speculation going on pushing Brent Oil to more than $125 even though there is huge demand destruction both in US and EU.
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