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The Saudis Won’t Prevent The Next Oil Shock


Saudi Arabia is starting to panic, and is growing concerned that the growing number of supply disruptions around the world could cause oil prices to spike. Saudi Arabia is moving quickly to head off a supply crunch, aiming to dramatically ramp up production to a record high 11 million barrels per day in July, according to Reuters.

The increase, if it can be pulled off, would be an incredibly rapid ramp up in output, up more than 1 million barrels per day (mb/d) from May levels.

How this plan fits into the latest OPEC+ deal remains to be seen. It was only a few days ago that Saudi Arabia and its coalition partners said that they would add 1 mb/d of supply back onto the market, with many of them acknowledging that, in reality, the figures would be closer to 600,000 bpd because of the inability of so many producers to ratchet up output.

As such, the addition of 1 mb/d from Saudi Arabia alone would lead to the OPEC+ group exceeding the production levels they just committed to, after factoring in additions from Russia and other Gulf States.

However, the surge in output does not need to exported, at least not right away. Saudi Arabia could divert extra barrels into storage. Moreover, higher output is needed during summer months anyway because the country burns oil for electricity, which spikes amid hot summer temperatures. So some of the extra production will be consumed domestically. Related: Hefty Inventory Draw Boosts Oil Prices

Still, an industry source told Reuters that the increase in output “will go to the market,” although the details are unclear. Bloomberg reports that shipments from Saudi Arabia to Aramco’s overseas storage facility in Egypt have already been on the rise this month.

“We already mobilized the Aramco machinery, before coming to Vienna,” Saudi oil minister Khalid al-Falih said over the weekend.

The dramatic ramp up in production suggests that Riyadh wants to prevent prices from rising too much. Producing at 11 mb/d will help offset the outages in Libya, Venezuela, Nigeria, Canada and Iran, but it might not be enough. The U.S. State Department said on Tuesday that Washington would take a hardline towards countries importing Iranian oil. The Trump administration expects countries to zero out Iranian oil imports by November 4, and the State Department said it would be unlikely that anyone would be granted a waiver.

That raises the odds of a much more serious outage from Iran than previously expected. Some analysts put the potential outage at 1 mb/d or more. If the U.S. is successful at convincing most countries to stop buying oil from Iran, the outages could rise to as high as 2 mb/d, although that remains speculation.

In another sign of how unpredictable the oil market has become, Kazakhstan lost 240,000 bpd this week, due to an unknown cause.

In this context, Saudi Arabia producing at 11 mb/d is probably needed, and it still might not be enough.

Worse, ramping up to 11 mb/d significantly cuts into available spare capacity. Estimates vary, but Saudi Arabia may have the ability to produce as much as 12.5 mb/d, although perhaps less. That means producing at 11 mb/d leaves only up to 1.5 mb/d of spare capacity. Add in smaller contributions from elsewhere and global spare capacity might only amount to 2 mb/d of supply as of July, or only about 2 percent of total global production. That would be down from about 3.0 to 3.5 mb/d up until recently.

“It basically leaves us with no spare capacity, at a time when Iran isn’t the only issue,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., said in a Bloomberg television interview. “Venezuelan production’s falling, Angola, Libya, Nigeria –there are lots and lots of issues everywhere in the world.”

Unless demand falls back, or some of these outages dissipate, oil prices could be heading much higher.

By Nick Cunningham of

15 Comments on "The Saudis Won’t Prevent The Next Oil Shock"

  1. Anonymouse1 on Thu, 28th Jun 2018 5:14 pm 

    What a minute, I thought according to the all the feel good shill and talking heads out there, that the world was ‘awash’ with oil, or there was a ‘glut’ (for the retards out there). Well, at least that was what they were all suggesting that way back…. a couple months ago.

    Now, is suggesting there is a pending ‘supply crunch’ of some sort is in the offing. How do things swing from one extreme to the other in the space of …less than a year?

  2. GregT on Thu, 28th Jun 2018 5:25 pm 

    No doubt there will be another ‘oil glut’ in the not so distant future Anonymouse1, when the price ‘collapses’ back to say ~$60/bbl. Just go with it. It’s easier that way.

  3. MASTERMIND on Thu, 28th Jun 2018 5:59 pm 


    Bullshit there will be another glut..You dumbshit..The Saudi’s don’t have the oil..Or they would have capped the prices back in 2008..That is what an email they sent to the US government that wikileaks released said..

    Saudi Arabian oil reserves are overstated by 40% – Wikileaks

    Greg you have replaced clogg as the most deluded denier on this board..

  4. MASTERMIND on Thu, 28th Jun 2018 6:02 pm 


    We never had a glut or prices would have been back to their 20th century averages of 20 dollars a barrel..We had slight overproduction..The media just called it a glut to mislead the sheep into thinking that oil prices were low..Even though they were more than double their 20th century..

  5. Anonymouse1 on Thu, 28th Jun 2018 6:29 pm 

    Shut up davyturd. I am not in need of a lecture on what you think the price of cancer juice is, was, or ought to be. My point, was, perhaps, too subtle for you to grasp. Stick to what you know best, goat abuse and mashing that refresh button on your Iphones browser.

    Greg otoh, understood perfectly well what I meant.

  6. Duncan Idaho on Thu, 28th Jun 2018 7:15 pm 

    “I won’t slave for beggars pay.
    Likewise, gold & jewels.
    But I would slave to learn the way
    To sink your ship of fools.”

    — The Grateful Dead, Ship of Fools

  7. twocats on Thu, 28th Jun 2018 7:51 pm 

    the most recent pullback, fall, whatever in oil price was the direct result of crazy fast and crazy short-term increases from shale oil. unless that oily-bird flaps and flies again the only way we get a significant retreat in oil prices is a recession.

    the contagion is already spreading a bit. China indexes are in bear territory. S&P hasn’t hit a fresh high in six months. Banks just had like a ten day losing streak (or similar). the problem with the colossal, i mean completely massively unprecedented EVERYTHING BUBBLE is that there is probably no ‘recession’ possible without a globally devastating, capital shredding, counter-party implosion to the Nth degree fuckfest.

    Sorry people – but this one is for keeps. No recession can be allowed. they’ll have to come up with another way to keep oil prices from rising too much more. and keep oil flowing to meet consumption/demand growth.

  8. Makati1 on Thu, 28th Jun 2018 8:56 pm 

    Arguing over oily things is a waste of time…

    Better to pay attention ot what is happening in the real world… like the isolation of the Jewnited State of Amerika being isolated like befroe WW1.

    “There is clearly a disinclination on the part of the Trump Administration to support multinational bodies, evident in the rejection of climate, trade and non-proliferation agreements. Complete withdrawal from the United Nations is not unthinkable in the current climate,…Haley’s constant citation of concern for Israel gives strength to the suggestion that there is something unnatural about its bilateral “special” relationship with the United States….Neither (US/Israel) has recognized the authority of the International Criminal Court in The Hague for fear that its own senior officials might be arrested and tried for war crimes….the U.S. withdrawal from U.N. agencies is, if anything, a sign of weakness rather than strength….what Washington is selling no one is buying.”

    The world is turning away form the “exceptional/indispensable country more and more every day. Slip slidin’…

  9. Makati1 on Thu, 28th Jun 2018 8:57 pm 

    From, not form…lol

  10. Makati1 on Thu, 28th Jun 2018 11:59 pm 

    BTW: Some here poopoo my assertion that the Us is being leveled financially. Maybe they should read this?

    “Trade War Provides Perfect Cover For The Elitist Engineered Global Reset”

    “The plan for this global reset seems to revolve around the diminishing of the U.S. as a major economic power. This does not necessarily mean the U.S. will be replaced directly. Instead, as Soros suggests, nations like China will fill the void as “smaller economic engines”. This is often referred to as “harmonization,” but what it really means is that the standard of living for ALL but a highly select minority will be deliberately reduced to a common denominator, and what is more common today than poverty?…

    Even under the best possible conditions of reformation, a depression and currency crisis is assured….

    The key to the reset is undoubtedly the end of the dollar as the world reserve currency. Without this status, the U.S. loses all economic trade advantage as well as the advantage of perpetual debt monetization. As the dollar’s influence is reduced globally inflation becomes a more pronounced threat at home….

    What trade war cheerleaders don’t understand is that a trade war with China is not a trade war with China alone. As the No. 1 exporter/importer in the world, if China decides to dump the dollar as world reserve its trading partners may very well do the same in order to secure their own import/export relationships….

    The dollar itself is nothing more than an imagined symbol; it is a tool for international bankers. And, like any tool, it can be replaced”

    The Great Leveling continues. Slip slidin’…

  11. JuanP on Fri, 29th Jun 2018 7:23 am 

    “Turkey will keep importing Iranian oil”

  12. joe on Fri, 29th Jun 2018 9:18 am 

    Well, the US ‘ally’ and nato member whoes president threatens Europe that he flood it with millions of migrants and whoes party is a staunch muslim Brotherhood supporter and affiliate with the group.


    Will be interesting to see if the new Erdogan Turkey will remain a US ally or keep supporting Iran and force Trump to sanction a Nato member country. My guess is that the muslim Brotherhood hates the Saudis and Jews more than the Shia right now, because even if the Sunni – Shia schism goes back a thousand years, muslims are supposed to fight hypocracy and infidels first.

  13. JuanP on Fri, 29th Jun 2018 9:22 am 

    “US-China trade war is great news for OPEC”

  14. JuanP on Fri, 29th Jun 2018 9:27 am 

    Turkey and the USA have a very complicated relationship. I think the USA lost Erdogan when they tried to kill him in the coup and the Russians saved his butt. Erdogan now hates the USA, Israel, and Saudi Arabia. Iran and Turkey may agree to compromise for some time.

  15. print baby print on Fri, 29th Jun 2018 12:58 pm 

    Ghawar is a big big hole but not that big and it is not bottomless

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