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Page added on October 23, 2014

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Saudi Arabia Cuts Oil Supply

Production

The amount of oil Saudi Arabia supplied to markets fell last month, according to a person familiar with the country’s oil policy. Its production climbed.

The world’s biggest crude exporter supplied 9.36 million barrels a day last month, a reduction of 328,000 barrels daily from August, according to the person, who asked not to be identified, citing policy. The supply figure excludes what’s stored. Saudi Arabia produced about 100,000 barrels a day more than in August, the person said.

Crude collapsed into a bear market this month as Saudi Arabia and other producers deepened price discounts for their oil, amid speculation they’re competing for market share in Asia. Global supplies are rising as the U.S. pumps the most in almost three decades and Russia’s output nears a post-Soviet record. Brent, the global oil benchmark, rose more than 1 percent immediately after the person’s comments.

“If this was an intentional cut by Saudi Arabia, I’d expect them to have cut the actual amount of oil produced and not just the supply to market,” Richard Mallinson, a London-based analyst at Energy Aspects Ltd., said by phone. “More is being read into the fluctuations than should be. I don’t see anything in these latest numbers to indicate a unilateral production cut.”

Cut Calls

Angola, Libya and Venezuela have all said OPEC needs to take action on prices, with the Latin American nation’s President Nicolas Maduro calling for an emergency meeting in a televised address Oct. 17. Global markets are oversupplied by about 1 million barrels a day and OPEC needs to reduce collective output by at least 500,000 barrels a day, Libya’s OPEC governor Samir Kamal said by e-mail yesterday, adding that his comments reflected personal views.

Saudi output in September was 9.7 million barrels a day, up from almost 9.6 million barrels a day in August, the person familiar with Saudi policy said. That’s the same as OPEC reported in its most recent market assessment.

Brent crude for December settlement rose as much as $1.94, or 2.3 percent, to $86.65 a barrel in London. West Texas Intermediate crude for December delivery gained as much as $1.38, or 1.7 percent, to $81.90 a barrel on the New York Mercantile Exchange.

“The market is reacting instantly to any news on oil market fundamentals,” Gerrit Zambo, an oil trader at Bayerische Landesbank in Munich, said by phone. “So far these gains have been only a short-term reaction, and then the market seems to go back to its bearish sentiment.”

bloomberg



18 Comments on "Saudi Arabia Cuts Oil Supply"

  1. Nony on Thu, 23rd Oct 2014 6:06 pm 

    Drill, baby, drill. Palin was right. 🙂

  2. Plantagenet on Thu, 23rd Oct 2014 6:11 pm 

    A 3% drop in oil production from Saudi Arabia will help ameliorate the oil glut, but they’ll have to do even deeper cuts to boost the oil price back up to ca. $100/bbl.

  3. bobinget on Thu, 23rd Oct 2014 6:39 pm 

    How about deeper throat cuts?

  4. MSN Fanboy on Thu, 23rd Oct 2014 6:48 pm 

    Nony, this is clearly because of ebola!!!

    Neither the Gloomers or Cornies are correct.

    Its all Ebola’s fault, …..

    And off to the races we go…..

  5. Speculawyer on Thu, 23rd Oct 2014 8:25 pm 

    Venezuela needs to slash their oil subsidy and reform their economy. The socialist paradise is a mirage that is going to sink.

  6. Northwest Resident on Thu, 23rd Oct 2014 10:55 pm 

    “…amid speculation they’re competing for market share in Asia.”

    Lots of speculation. Does anybody know the real answer? More likely, SA is aiming to accomplish multiple goals with their actions.

    It’s been an interesting last couple of weeks. Oil price nosedive. Stock market deep drops only to be pumped back up in what many suspect is the result of blatant market manipulation. SA announcing price decreases, now cutting output.

    What’s next?!

    Maybe it is getting close to time to filet the “fish”?

    http://www.theautomaticearth.com/institutional-fish/

    “Large and/or institutional investors, your pension funds, your market funds, you name them, have one glaringly obvious and immense Achilles heel that they very much prefer not to talk about. That is, they MUST invest their funds, in something, anything, they can’t NOT invest. They are trapped in the game. They have to roll over debt, investments, all the time.

    The big funds can play the game, but they really shouldn’t, because they can’t win. Not in the end. Not when the chips are down. The reason is that they cannot fold. And the others at the table know this, and immediately recognize this for the fatal flaw it is. No matter how smart and sophisticated institutional investors and their fund managers may be, in ultimo they are, to put it in poker terms, the ‘designated’ fish.

    As long as there’s enough to eat at the table, the ‘solid’ players can bide their time and let the fish fatten themselves (as long as it’s not from their money), only to gut them when times get leaner. In a way, the solid players use the fish as a way to stow away for a rainy day some of the ultra cheap QE money that has made available, the money without which there would be no markets left, if only so their own actions don’t become too conspicuous.

  7. Davy on Fri, 24th Oct 2014 6:51 am 

    Damn NR, exceptional research once again. This market is constantly intriguing me with nuances. NR’s point definitely points to a structural illiquidity in the market both good and bad IMA. There is so much liquidity today it has little choice where to go. There is an analogy of the ship with too few lifeboats. This captivity stabilizes the markets but at a cost. One’s attitude changes when you realize there is no easy out. The dark side of this situation is panic and little opportunities for tools to calm the market. IOW equilibrium has strength because of a fear factor of nowhere to go but when that fear factor has been breached there are few tools to manage the panic. Folks panic is chaos. In the markets it is a random abandonment of trade and exchange in the market. We are in a strange market now with historic liquidity but in effect this condition has created an illiquidity. The danger then becomes not a sell off which are normal stabilization mechanisms but stampedes. This last sell off we saw the reality of our markets today plain and simple and that is repression manipulation. How long is jawboning by a central bank going to be enough. QE has reached its end of effectiveness so at some point jawboning will have to be action and that action will be like throwing gas on a fire.

  8. shortonoil on Fri, 24th Oct 2014 7:22 am 

    See our post at the end of the thread below:

    http://peakoil.com/publicpolicy/plunging-oil-prices-challenge-geopolitical-energy-industry-assumptions

    http://www.thehillsgroup.org/

  9. Davy on Fri, 24th Oct 2014 7:55 am 

    Short, I keep notes on my computer of exceptional information. Your two posts on the thread you reference were copied and pasted to my notes. I believe them to have major significance and I will watch to see what unfolds.

  10. shortonoil on Fri, 24th Oct 2014 8:08 am 

    “I believe them to have major significance and I will watch to see what unfolds.”

    Instead of watching what is unfolding, you might be better off watching what is unraveling! lol

    I think it is reasonable to expect that the world will enter into a major depression over the next 2 to 3 years. This will be a depression that will not be exited from in the life time of any person living today.

  11. rockman on Fri, 24th Oct 2014 8:08 am 

    Davy – “There is so much liquidity today it has little choice where to go.” Which is exactly what my company is suffering from. In 4 decades in the oil patch the struggle has always been to fund viable drilling projects. My problem today is finding viable conventional oil/NG projects to spend the hundreds of $millions my owner can make available. The problem was just as significant as when oil was $100+ per bbl. So what’s his only choice? Dump that huge chunk of liquidity into all the stock markets around the world. Such a huge chunk the family has their own trading company that only handles their funds. If we don’t find some acceptable domestic large drilling projects quickly the company might be shut down.

    Similar to what many other investors face: for a variety of reasons the lack of investments opportunities in a not yet fully recovered economy and interest rates in safe havens too low many are pressured to stick their monies into Wall Street. In an odd way concerns over economic stability may be a factor in the market vitality: it might be shaky but less shaky then the other options available.

  12. Northwest Resident on Fri, 24th Oct 2014 10:45 am 

    “… the world will enter into a major depression over the next 2 to 3 years.”

    Question: What is the difference between a major depression and a total economic collapse?

    I don’t have an answer to that question. Does anybody?

    It may be that neither “depression” nor “total economic collapse” adequately describe the situation that our world appears to be headed for. Why? Because economies can, and historically have, recovered from “depression” and “total economic collapse”. That may not end up being the case with the situation we’re heading into. To adequately describe what the world is heading toward might require a whole new word or phrase. Maybe humans living a hundred or more years from now (if any) will refer to this as the AGE OF TEOTWAWKI. Or maybe “THE PLASTICOBSCENE ERA”. Or simply, “THE SECOND DARK AGE”.

    Any other bright ideas???

  13. Kenz300 on Fri, 24th Oct 2014 10:52 am 

    Too much of the worlds oil is subsidized by governments making the price to the public much cheaper than it should be. This encourages waste and discourages conservation. Saudi is a prime example of very cheap gas and oil internally. At some point the subsidies need to end. It would be better to start reducing the subsidy now gradually than create a shock later.

  14. Davy on Fri, 24th Oct 2014 11:51 am 

    NR, I don’t think economic depression can describe it because the paradigm has changed. Economic depression relates to our historical experience. Economic collapse may be inadequate because this is a global system unraveling so many areas may actually find comparative advantages. In any case it will be an energy gradient related to food and liquid fuels. Economically the only word for it I can muster is a blind descent to somewhere down there. If the “Good Lord Willin” maybe something other than a modern version of the Stone Age. I think we have a choice now as humanity to make this better or worse. The question is will Lady Luck be on our side.

  15. Northwest Resident on Fri, 24th Oct 2014 12:17 pm 

    Davy — Those are pretty much my same thoughts on the subject. You do raise a very frightening prospect, however. And that is, whether or not Lady Luck will be on “our” side. I’ve rolled the dice and won a few big ones in my time, but in general, I’ve come to the conclusion that Lady Luck is not only NOT on my side most of the time, she is instead looking to screw me at every possible opportunity, and not in the good way. Have you ever listened to that song from the “Guys And Dolls” musical — Luck Be A Lady Tonight. Ha! Good luck with that…

  16. Davy on Fri, 24th Oct 2014 1:08 pm 

    NR, your comment reminds me of my feeling of myself being backwards. I get this feeling when I am in a position for example in the dark and putting my shirt on. I will ask myself ok this way or that. I know there is a statistical explanation for the odds of putting your shirt on right or wrong. I am suffering from a mental condition of sorts because I tend to think I am putting my shirt on backwards more than I am putting it on correctly. Yet, I believe if I did the analysis it would be a 50/50 occurrence. Now getting back to luck. Can we confuse luck for a statistical occurrence? My view of luck is a random result that turns out to be beneficial. But is not luck also winning the odds? In that case you may have a greater or lesser chance of being “lucky”. Here is the classic definition:

    Noah Webster’s dictionary, luck is “a purposeless, unpredictable and uncontrollable force that shapes events favorably or unfavorably for an individual, group or cause”.

    Here is some further view of the issues from a book review of “Chance, Luck, and Statistics” By: Horace C. Levinson

    To understand the laws behind chance and probability, you don’t need a degree or other formal training in mathematics; all you need is this book! In simple, nontechnical language, it will introduce you to the fundamentals governing chance. Then you’ll find a host of practical statistical applications for your new knowledge, including everyday pursuits ranging from sports and government to business and other fields.
    The first part explains the theory of probability, with particular reference to superstitions and fallacies, betting odds, and the law of mathematical expectation, and with specific applications to poker, roulette, lotteries, dice games, bridge, and other games involving chance. The second part illustrates: how to apply the principles behind probability theory to statistics, with discussions of normal frequency distributions and the dangers of misusing statistics. A survey of statistical applications takes in a remarkable variety of fields, including strategic warfare, social problems, stock speculation, advertising, and operations research

  17. Northwest Resident on Fri, 24th Oct 2014 1:29 pm 

    Davy — You’re right again. It is 50/50. It balances out over the long run. Which is why I know that I’m due for a long winning streak! Anytime now… 🙂

    Actually, I’m lucky in a lot of different ways — very, very lucky. It is just in my annual Fantasy Football league where I get hit with the incredibly bad luck. Last year, my team was favored to win every game — I came in last place. This year, I got the only A+ draft score in my league. Result so far — 2 wins, 5 losses. Tied for last place. Luck is fickle. Better not to depend on luck, to be prepared and try to minimize the randomness of luck whenever possible.

    P.S. I don’t have that issue putting my shirts on in the dark. You must not wear many button downs?

  18. louis wu on Fri, 24th Oct 2014 2:21 pm 

    Maybe our current situation can be summed up by this joke:
    Doctor:I’ve got some bad news and worse news for you.
    Patient:What’s the bad news?
    Doctor:Your condition is such that you won’t live more than about a day.
    Patient:What news could possibly be worse than that?
    Doctor:I couldn’t reach you yesterday.

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