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Page added on April 25, 2015

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Saudi Arabia’s solution to global oil glut: Pump even more crude

Production

Saudi Arabia has a response to the global surplus of oil: Raise output to near-record levels, and then pump even more.

The world’s biggest oil exporter, having abandoned last year its role of keeping global markets in balance, now has incentive to maximize output and undermine rival producers by using its reserve capacity, according to Citigroup Inc. and UBS AG. Just meeting its own domestic demand this summer will require a lot more fuel, others estimate.

The increase—a snub to fellow OPEC members calling on the kingdom to cut production—will heighten tensions when the organization meets in June. Oil plunged to a six-year low near $45/bbl in January, six weeks after the Saudis overcame opposition within the group to keep up output despite surging U.S. shale supplies.

“Increasing production and exports is the clear implication of Saudi’s new oil policy,” Seth Kleinman, head of European energy research at Citigroup in London, said by email. “If you want to pressure high cost producers, why hold oil back on spare capacity? Use it all and use it now.”

Output Surge

The biggest member in the Organization of Petroleum Exporting Countries boosted output to 10.1 MMbopd in March, close to an all-time peak, the International Energy Agency reported on April 15. Saudi Oil Minister Ali Al-Naimi, who has stressed that his country won’t cede market share to higher-cost producers, said in the capital Riyadh on April 7 that production was at 10.3 MMbopd and would remain close to that.

The output decision was “forced upon them” by the runaway growth of U.S. shale, which threatened to erode their market share, Yusuf Alireza, CEO of commodity trader Noble Group Ltd., said at a conference in Lausanne, Switzerland, on April 21.

Saudi Arabia’s crude exports slumped to a three-year low of 7.11 MMbpd last year amid reduced U.S. imports, according to information the nation provided to the Joint Organisations Data Initiative.

Refusing to cut has already been effective in slowing growth in U.S. shale, Tony Hayward, CEO of Genel Energy Plc, said at the Lausanne conference. The IEA, the Paris-based adviser to 29 developed economies, forecasts that non-OPEC supplies, led by the U.S., will expand by only 630,000 bopd in 2015, down from a projection of 1.3 MMbopd in November.

Refinery Expansion

The outlook for demand suggests the Saudis will keep production at “elevated levels,” said Miswin Mahesh, an analyst at Barclays Plc in London. Domestic oil consumption rises in the summer months as air conditioning use climbs, and supplies also will be needed for two new refineries, Mahesh said. Summer demand may require output of 11 MMbopd, London-based consultant Energy Aspects Ltd. said in an April 13 report.

“The implication of the ‘use it all and use it now’ strategy is that they will continue to ramp up production to 11 and possibly beyond,” said Kleinman of Citigroup.

The extra crude won’t necessarily weaken oil prices because it will be consumed locally rather than shipped abroad, said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. Price increases for Asian customers indicate the country isn’t trying to push supplies onto consumers or capture market share, he said.

OPEC Pleas

“Oil exports to the market may not necessarily move higher,” said Tchilinguirian. “We don’t think there’s a discretionary push to expand market share to the detriment of other OPEC producers.”

Fellow OPEC members keep calling on Saudi Arabia to reverse course and curtail supplies. The organization’s 12 members will next meet in Vienna on June 5.

OPEC should trim “at least 5%” from its output target of 30 MMbpd, Iranian Oil Minister Bijan Namdar Zanganeh said on April 14. Venezuelan Oil Minister Asdrubal Chavez, whose predecessor Rafael Ramirez tried to broker a production cut between OPEC and non-members, visited Saudi Arabia this week.

Iran, suffering from both the collapse in crude prices and international sanctions on its exports, needs an oil price roughly double current levels to cover government spending this year, the International Monetary Fund estimates. Brent crude futures rose 53 cents to $65.38/bbl on the London-based ICE Futures Europe exchange at 11:18 a.m. London time Friday. The contract has lost 44% since June.

Tapping Capacity

The organization is likely to persist with its current course, Genel’s Hayward said. With no group accord to restrain output, Saudi Arabia will choose to tap its spare capacity, according to UBS. The kingdom has about 2.2 MMbopd in reserve, the IEA estimates.

“Saudi Arabia will go from record to record,” Giovanni Staunovo, an analyst at UBS, said by email from Zurich. “Considering that OPEC isn’t balancing the market any more, why should they hold an unutilized spare capacity, rather than use it and make money with it?”

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37 Comments on "Saudi Arabia’s solution to global oil glut: Pump even more crude"

  1. Nony on Sat, 25th Apr 2015 9:15 am 

    But, but wait. What about Simmons and Twilight in the Desert? Wasn’t that a huge peaker viewpoint? What about Staniford? How can SA be going so strong in 2015? Weren’t the supposed to be in decline? Weren’t they supposed to be covering up and lying about their ability to put on more barrels?

    Simmons = idiot.

    Staniford = pretty smart guy…but still has not manned up and really taken his intellectual buttwhipping.

  2. GregT on Sat, 25th Apr 2015 10:45 am 

    The faster a finite resource is consumed, the more rapidly it will be depleted. This isn’t rocket science Noony. We should be rationing the remaining reserves, and using them to build out alternate energy infrastructure. Instead, we are consuming them as quickly as we can.

    When Ghawar goes into terminal decline, I suspect that it will deplete much more rapidly than 8% per annum. Simmons will be vindicated, well within your lifetime Noony. Your irrational exuberance will do nothing to stop the inevitable.

  3. BobInget on Sat, 25th Apr 2015 10:46 am 

    Simmons timing is questionable NOT his intelligence.

    In addition to Nony’s in-depth analysis may I offer another?

    http://peakoilbarrel.com/closer-look-saudi-arabia/

    One single company, http://www.corelab.com/
    is responsible for Ghawar’s comeback.

  4. Plantagenet on Sat, 25th Apr 2015 11:30 am 

    Saudi created the oil glut by increasing production and undercutting existing oil prices. Its really no surprise if Saudi pumps even more and pushes oil prices down even more.

  5. apneaman on Sat, 25th Apr 2015 12:15 pm 

    Nony-marm says – Squawk! Squawk! Simmons, Staniford, Hubbert Squawk! Squawk! Polly Wanna Cracker! Polly Wanna Cracker! Squawk! Squawk! Simmons, Staniford, Hubbert Squawk! Squawk! Polly Wanna Cracker! Polly Wanna Cracker! Squawk! Squawk! Simmons, Staniford, Hubbert Squawk! Squawk! Polly Wanna Cracker! Polly Wanna Cracker! Squawk! Squawk! Simmons, Staniford, Hubbert Squawk! Squawk! Polly Wanna Cracker! Polly Wanna Cracker! Squawk! Squawk! Simmons, Staniford, Hubbert Squawk! Squawk! Polly Wanna Cracker! Polly Wanna Cracker! Squawk! Squawk! Simmons, Staniford, Hubbert Squawk! Squawk! Polly Wanna Cracker! Polly Wanna Cracker! Squawk! Squawk! Simmons, Staniford, Hubbert Squawk! Squawk! Polly Wanna Cracker! Polly Wanna Cracker! Squawk! Squawk! Simmons, Staniford, Hubbert Squawk! Squawk! Polly Wanna Cracker! Polly Wanna Cracker!

  6. Davy on Sat, 25th Apr 2015 12:42 pm 

    Ape Man, the NOo and the Marmi are squawking because they are intimidated and fearful of the truth. Their fantasy world of progress is under threat. This has always been a peak oil refrain “if we are nutters without a message why comment on our message?”

    The reason they are squawking is we are winning the debate. This is slow and arduous but steady and consistent. They have to maintain their message as they sink into the abyss. We patiently hold fast to the rules of nature and common sense. Time is on our side. They are squawking we are singing the truth.

  7. apneaman on Sat, 25th Apr 2015 1:04 pm 

    And what an ugly truth it is – hence the denial by the majority. Humans are strange people.

  8. Nony on Sat, 25th Apr 2015 1:44 pm 

    Peak oil sites are dying, traffic is down. The less crazy peakers like Rapier and Staniford seek to distance themselves from the movement and rebrand themselves. I don’t think cornies are scared of you lot. Most people just ignore you. Even your own kind are moving on.

  9. shortonoil on Sat, 25th Apr 2015 4:04 pm 

    If anyone thinks that with the present price structure that the existing production level can be maintained for any significant period of time, they are dumber than a box of rocks. At least a third, and probably more of the world’s producers are operating heavily in the red. E&P will be delayed for a very long time, and that translates into no new oil coming on line in the future. When what is there now is gone, its gone! Peak Oil will become an anachronism after the oil age is over!

  10. toms2 on Sat, 25th Apr 2015 4:28 pm 

    It was one of the cornerstone beliefs of the peak oil movement that Saudi Arabia was in terminal decline back in 2005. It’s apparent in retrospect that that was totally wrong. Yet again, another massive error by peak oilers.

    This also demonstrates that conventional oil did not stop increasing in 2005 for geological reasons but because Saudi Arabia wasn’t pumping as fast it could.

    The peak oil movement had NOTHING right. I’m not just talking about the crackpot doomsday group which was extremely silly from the beginning. Even Hubbert curves etc were just totally wrong.

    -Tom S

  11. toms2 on Sat, 25th Apr 2015 4:30 pm 

    apneaman and Davy, you are confronted with absolutely MASSIVE disconfirming evidence almost every day. Don’t you even notice that? Don’t you ever even ASK why the predictions keep failing so badly, year after year, decade after decade?

    -Tom S

  12. Davy on Sat, 25th Apr 2015 4:48 pm 

    Tommy two, Saudi Arabia is in terminal decline. What makes you think they are not? Yes, the peakers were wrong with KSA but only by a few years.

    I want you to know also Tommy I am not a peaker. I am a doomer. There is a difference. Peak oil dynamics is only part of why I am dooming. The end of growth and diminishing returns of technology, complexity, and the financial system are broad based. Population and resource depletion are elephants in the room. Overshoot of population and consumption are plain as day.

    Tommy you are just another BAUtopian with illusions of the exceptionalism of man’s progress through technology and development. The greenies are as bad as the brownies. Doomers do not live in denial. As a doomer I am hoping you cornucopians step up to the plate and deliver on all these promises of a shiny future with hopium and happiness.

    I am not looking forward to pain and suffering. I am just being a man about it and accepting death. That is what the end of BAU will be death. There is no reason to sugar coat it. What we can do is make this descent less bad and the hopium will be less pain and suffering. Time is running out so I feel it is people like you Tommy Two that are leading us into the snake pit of pain and suffering by false promises.

  13. GregT on Sat, 25th Apr 2015 4:49 pm 

    “I don’t think cornies are scared of you lot. Most people just ignore you. Even your own kind are moving on.”

    If you aren’t scared Noony, why do you spend so much of your time here each and every single day?

    Most people don’t ignore peak oil. The vast majority of people have never even heard of peak oil, are completely oblivious to their surroundings, and only believe what the MS corporate media tells them. People believe that infinite growth in a finite environment is possible. People actually believe the eCONomists Noony. People in general are not very intelligent, yourself obviously included.

    Ignore science Noony, ignore basic
    physics and mathematics, ignore biology. Ignorance will not make reality go away.

    Stick around here at Peak Oil dot Com though. Your dissent only keeps the rest of us honest, and helps to strengthen our resolve.

  14. GregT on Sat, 25th Apr 2015 4:57 pm 

    TomS,

    Any finite non-renewable resource enters terminal decline from the moment it begins to be consumed. The faster it is consumed, the sooner it will run out. The Saudis’ are producing oil as quickly as they can. Your denial of physical reality will not change this fact.

  15. Apneaman on Sat, 25th Apr 2015 5:13 pm 

    Tom other peoples predictions are for those who are to lazy or unable to figure things out for themselves. I do not hang off them as if that is actually what defines reality. You and Nony-marm remind me of a bunch of guys drinking beer in a sports bar arguing over each others Superbowl predictions. As if the prognosticators words had any bearing on who won or lost that game. BTW our friend shortonoil and the hills group, have made specific predictions about peak oil right here 7 days a week – age of oil more or less over by 2020 if I remember correctly. How come your not trying to counter their claims with your special powers? They lay it all out for you at their site. Math too hard Tom?

  16. steve on Sat, 25th Apr 2015 7:27 pm 

    The reason they come to this site is because they know the world is screwed and the want to try to assure themselves that they will be o.k…the markets are held together by massive manipulations…Bad news is good news for the stock market. It falls 290 points on a friday and goes up 230 on the following Monday. They know the truth they just want to pretend it is not the truth.

  17. Poordogabone on Sat, 25th Apr 2015 7:46 pm 

    When Matt Simmons wrote “twilight in the desert” oil was hovering around $40 no one at that time thought that it would ever break the $100 mark and stay there for several years. What is amazing is how little production gained considering the sustained high price and heavy investment from all oil players including SA. If prices had remained in the 40’s, there wouldn’t have been big investments and the world including SA would be in decline. Matt Simmons, Colin J. Campbell, King Hubbert
    are all vindicated. To think otherwise is being either dishonest or plain dumb.

  18. Nony on Sat, 25th Apr 2015 7:56 pm 

    Simmons-Tierney bet: Simmons lost.

    http://en.wikipedia.org/wiki/Simmons%E2%80%93Tierney_bet

    [Simmons] said, recalling a TV interview in which he predicted that a barrel might hit triple digits. [Simmons] said that the anchor scoffed, in disbelief, “A hundred dollars?” Simmons replied, “I wasn’t talking about low triple digits.”

  19. Apneaman on Sat, 25th Apr 2015 8:26 pm 

    Nony-marm needs to concentrate on dead guys bets and predictions and nothing else. That way he does not need to SEE anything else. It’s like he has his nose pressed up against the TV screen staring at just a few warm glowing pixels – too afraid to step back and see the big picture.

  20. steve on Sat, 25th Apr 2015 8:37 pm 

    Noony the reason Simmons was wrong was because he did not see the massive financial collapse in 2008 and 09…he did not take into account massive deflation…but don’t worry before all this is over with the massive manipulations of the currencies he might be right….and you might be paying $100 dollars for a gallon of milk. There is nothing to be smug about here.

  21. Nony on Sat, 25th Apr 2015 8:59 pm 

    I think Simmons foresaw all kinds of financial death and destruction. Probably worse than what we had.

  22. Nony on Sat, 25th Apr 2015 9:05 pm 

    Simmons was wrong on the geology. He thought the Saudis were covering up for how they were almost out of oil. That hasn’t been the case. Even with prices well south of Simmons’s several hundred dollar predictions, SA does fine to pump at 9-10 MM bpd.

    Simmons (and Staniford) were wrong. It was a major meme of the mid 2000s peaker movement. And it was wrong.

  23. Tom on Sat, 25th Apr 2015 10:10 pm 

    For many, many years Saudi Arabia maintained its production level with less than 20 drilling rigs operating. Now, according to the Baker Hughes Rig Count , there are over 120 rigs drilling there. Must be a lot of densification of well spacing going on. If I remember correctly, this is what Stewart Staniford saw going on some years ago in his Google Earth analysis of Saudi drilling sites. So what’s going on? Why such a dramatic increase in drilling rigs if Saudi Arabia is still loaded with easy oil? Seems to fit in with what Matthew Simmons predicted for the Saudi fields. Why don’t we see more such analysis to give us a better idea of what’s happening there?

  24. Nony on Sat, 25th Apr 2015 10:20 pm 

    wow, a whole 120 drilling rigs. Big whoop. And all of Staniford’s sturm and drang was about an extra 100 drilling rigs being needed? What a freaking joke. Still the low cost producer.

  25. GregT on Sun, 26th Apr 2015 12:04 pm 

    You’re making yourself look even more foolish than you normally do Nony. You can stick your fingers in your ears and hold your breath until you’re blue in the face. Nothing that you do will change the fact that finite non-renewable resources will eventually deplete if we keep consuming them. A six year old child should be able to figure this out.

  26. Nony on Sun, 26th Apr 2015 12:17 pm 

    Actually it is the peakers that are the 6 year olds. Failing to face facts. Failing to revisit their old comments. There is a reason why the sites are dying…

  27. GregT on Sun, 26th Apr 2015 12:23 pm 

    Nothing that you do (or say) will change the fact that finite non-renewable resources will eventually deplete if we keep consuming them.

  28. Davy on Sun, 26th Apr 2015 12:35 pm 

    NOo, if these sites are dying why do you keep coming back?

  29. Apneaman on Sun, 26th Apr 2015 12:39 pm 

    Nony-marm, if it’s so dead then why can’t YOU let go? Are you such a fucking loser that you can find nothing better to do with your life than contradict a group of concerned doomers? I don’t spend my time on the internet trying to debunk young earth creationists or crypto zoologists. If devoting all your free time being a contrarian to a subject you believe is bunk, is all you have in the world – then my condolences to you.

  30. Nony on Sun, 26th Apr 2015 12:44 pm 

    Apnea: you are on target. I don’t think it’s good that I want to pester people to admit they were wrong (and people hate doing so, even if they were). I should concentrate on something positive. I will let you guys have your discussions.

    Davy, you are a fun guy even though we disagree. [But stop picking on Maki, so much. I’m even more anti-anti-American than you are, but I don’t like you riding him.]

  31. GregT on Sun, 26th Apr 2015 12:56 pm 

    Ignorance of reality is not positive Nony. It is foolish. Making plans for the eventuality of a negative situation, is a positive.

  32. Apneaman on Sun, 26th Apr 2015 12:58 pm 

    “pester people to admit they were wrong”

    Your life’s work – is it any wonder you have no one else or any where to go.

  33. Apneaman on Sun, 26th Apr 2015 1:09 pm 

    Look nony-marm, apparently some of your old friends have moved on to other endeavors. Not dead after all.

    Nate Hagens – Turning 21 in the Anthropocene

    https://www.youtube.com/watch?v=da5sP3wRuJ8&feature=youtu.be

  34. Davy on Sun, 26th Apr 2015 1:14 pm 

    Sorry, NOo, I will grant you any wish but that one. The Makster is in my crosshairs until he lightens up. I could give at rats ass what anyone thinks here in that regards. BTW, I let you be an idiot with Rock.

  35. Northwest Resident on Sun, 26th Apr 2015 1:26 pm 

    Oil Glut explained:

    The premise is simple. By keeping rates artificially suppressed, the central banks of the world effectively make it impossible for the market to purge itself of inefficient actors and loss-making enterprises. As a result, otherwise insolvent companies are permitted to remain operational, contributing to oversupply and making it difficult for the market to reach equilibrium. The textbook example of this dynamic is the highly leveraged US shale complex which, by virtue of both artificially low borrowing costs and the Fed-driven hunt for yield, has retained access to capital markets in the midst of the oil slump and has thus continued to drill contributing to the very same price declines that put the entire space in jeopardy in the first place.

    There is so much stupidity, ignorance, insults and lies posted on this forum by the usual three suspects — Nony, Plantagenet, Marmico — the three trollsmen of the apocalypse — or at least an accurate representation. It is truly sickening to witness such ignorance and pompous idiocy prolifically spouted by these three morons. With dead weight like these three asses, it really does look like the human race is in serious need of a dramatic purge.

    When QE Leads To Deflation: A Look At The “Confounding” Global Supply Glut

    http://www.zerohedge.com/news/2015-04-26/when-qe-leads-deflation-look-confounding-global-supply-glut

  36. Apneaman on Sun, 26th Apr 2015 2:11 pm 

    And now the beginning of the end for the halls of higher learning starts – Oh well most graduates I know are fucking morons anyway. Fast collapse – slow collapse, it’s all unraveling no matter which way you look at it.

    LSU bond buyers presented insolvency plan

    http://www.houstonchronicle.com/news/nation-world/nation/article/LSU-bond-buyers-presented-insolvency-plan-6220042.php

    Louisiana State to Draft Insolvency Plan as Jindal Cuts Loom

    http://www.bloomberg.com/politics/articles/2015-04-23/louisiana-state-to-draft-insolvency-plan-as-jindal-plans-cuts

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