Saudi Arabia Ready to Start Pumping More Oil

[Manfred Kruger + 40]

In the case of the US, which still imports some 8 million BPD, you could make the case that reducing those imports would have a similar effect on the global supply balance as increasing exports. Furthermore having witnessed the resourcefulness of the US oil industry, I am sure that they will come up with economic alternatives to increase exports a la “LOOP”, if it makes sense to do so.

[William Edwards + 708]

2 minutes ago, Manfred Kruger said:

 

In the case of the US, which still imports some 8 million BPD, you could make the case that reducing those imports would have a similar effect on the global supply balance as increasing exports. Furthermore having witnessed the resourcefulness of the US oil industry, I am sure that they will come up with economic alternatives to increase exports a la “LOOP”, if it makes sense to do so.

 

It appears that you are not considering the limitation that reserves places on production and export capability, Manfred. Ultimately that sets the maximum, not mental or commercial resourcefulness. Or did I misinterpret your comment?

[DanilKa + 443]

19 hours ago, William Edwards said:

Of course I use inflation-adjusted dollars in my fifty-year assessments

William, with all due respect, notion of using 50 years period for comparative inventory escapes me. Demand grown by ~1% a year or higher; Iranian revolution, tight oil/gas revolution, shale oil/gas revolution happened; gold convertibility abandoned and dollar devalued - perhaps you've missed on comparative nature of the inventory?

 

[Kamusanka 0]

Geopolitics is the main driver of oil price. 

[Tom Kirkman + 8,860]

55 minutes ago, Kamusanka said:

Geopolitics is the main driver of oil price. 

And oil & gas drive much of geopolitics.

 

 

[Dennis Coyne + 82]

On ‎5‎/‎14‎/‎2018 at 8:24 PM, William Edwards said:

Surely I have missed something. You are not seriously basing your analysis on three or four years of data, are you? Try fifty years to be believable. If that assessment shows ANY correlation between inventories and prices, you had best re-check your data source.

And if the Saudi producing ability has suffered sufficiently in the past couple of years for them to have only 500 MB/D of spare capacity, then I will be very surprised to learn that fact.

Hi William,

 

The claimed spare capacity for KSA of 2 Mb/d, is only a claim until we see the 12.1 Mb/d of output, if they claimed 5 or 10 Mb/d of spare capacity, would you believe that as well?

Can you show me when in the past 50 years KSA has produced 12.1 Mb/d? Until I see empirical evidence that KSA actually has produced at a sustained 12.1 Mb/d average output for a 30 day period, I will remain skeptical.

Based on EIA data the highest Saudi C+C output since Jan 1973 was 10.67 Mb/d in July 2016, and the highest 12 month centered moving average Saudi C+C output level was 10.46 Mb/d (June/July 2016).  Jan 2018 Saudi C+C output was 10.2 Mb/d (EIA data) and spare capacity based on the maximum output to date would be 470 kb/d.

If I see evidence of monthly output above 10.67 Mb/d in the future, I will revise my estimate.

I do agree the comparative inventory analysis seems to have little predictive power over the long term, future oil prices are difficult to predict, except maybe in general terms such as a tight market in the short term is likely to lead to a short term increase in the market price of oil.  Longer term, supply may increase and consumers may switch to more efficient vehicles which may drive prices down.

Edited May 16, 2018 by Dennis Coyne

[William Edwards + 708]

5 hours ago, DanilKa said:

William, with all due respect, notion of using 50 years period for comparative inventory escapes me. Demand grown by ~1% a year or higher; Iranian revolution, tight oil/gas revolution, shale oil/gas revolution happened; gold convertibility abandoned and dollar devalued - perhaps you've missed on comparative nature of the inventory?

 

Possibly I am completely off base, but my reading of your comments suggest that, so far, you have not thought through the role of inventory in the petroleum system, including the recognition that the use of the term "inventory" is a gross oversimplification. There are three major categories of petroleum industry inventories, 1)cargo accumulation, 2) operational swing and 3) seasonal of speculative accumulation,and each performs separately and distinctly. All categories of inventory are a result, not a cause, of prices, economics and and operational features. The fundamental role of the various categories of inventories has not changed over the past fifty years. Thus observations of the activity through the various industry variations can be instructive.

It is true that I may not have a clue as to your definition and use of the term "comparative inventory. But my limited understanding would suggest that the "inventory" considered therein is a leader, not a follower. I reject this notion.

[William Edwards + 708]

4 hours ago, Kamusanka said:

Geopolitics is the main driver of oil price. 

Wrong! The relationship between price and demand is the main driver.

[Rodent + 1,424]

Somewhere I read a study that proved that production and prices are tightly correlated, with production being the leader (not the other way around). What leads production however, is debatable, although demand seems to me the logical answer: why would producers produce if the demand wasn't there? One could argue, however, that producers were too happy to produce willy nilly despite the glut of last year, but eventually this corrected itself (speaking of US only here), so one could argue that it does indeed follow demand, but that there is a significant lag. This makes sense, because i read another study somewhere (but can't remember where now) that showed that inventory (albeit perhaps indirectly as a result of demand) drove production (or was it rigs?--same thing), but with a six-month lag. Wish I remembered where I saw that. Might have to go back in the way-back machine to a year ago article of mine regarding weekly API figures. 

[William Edwards + 708]

1 hour ago, Dennis Coyne said:

Hi William,

 

The claimed spare capacity for KSA of 2 Mb/d, is only a claim until we see the 12.1 Mb/d of output, if they claimed 5 or 10 Mb/d of spare capacity, would you believe that as well?

Can you show me when in the past 50 years KSA has produced 12.1 Mb/d? Until I see empirical evidence that KSA actually has produced at a sustained 12.1 Mb/d average output for a 30 day period, I will remain skeptical.

Based on EIA data the highest Saudi C+C output since Jan 1973 was 10.67 Mb/d in July 2016, and the highest 12 month centered moving average Saudi C+C output level was 10.46 Mb/d (June/July 2016).  Jan 2018 Saudi C+C output was 10.2 Mb/d (EIA data) and spare capacity based on the maximum output to date would be 470 kb/d.

If I see evidence of monthly output above 10.67 Mb/d in the future, I will revise my estimate.

I do agree the comparative inventory analysis seems to have little predictive power over the long term, future oil prices are difficult to predict, except maybe in general terms such as a tight market in the short term is likely to lead to a short term increase in the market price of oil.  Longer term, supply may increase and consumers may switch to more efficient vehicles which may drive prices down.

You have done a fine job, Dennis, of displaying historical data on Saudi production levels. I do not agree, however, that past performance is indicative of future performance or underlying capability. Saudi production for the past forty years or so has beed determined, absolutely, by the total global demand for crude. Saudi production capability has been designed with those demand numbers as the basis. Accordingly, I am confident that if the Saudis were convinced of the need for and an attractively-priced outlet for 15 million barrels a day of their quality of crude oil, they could have that capability installed in a couple of years.

To put it in perspective, do you question the ability of the US to produce 12 million barrels a day of crude from 40 billion barres of reserves while doubting the ability of the Saudis to produce twice that quantity from six times those reserves? If not, then be comfortable that the Saudis can supply 20 million barrels a day, probably at a modest cost, if necessary.

[William Edwards + 708]

6 minutes ago, Rodent said:

Somewhere I read a study that proved that production and prices are tightly correlated, with production being the leader (not the other way around). What leads production however, is debatable, although demand seems to me the logical answer: why would producers produce if the demand wasn't there? One could argue, however, that producers were too happy to produce willy nilly despite the glut of last year, but eventually this corrected itself (speaking of US only here), so one could argue that it does indeed follow demand, but that there is a significant lag. This makes sense, because i read another study somewhere (but can't remember where now) that showed that inventory (albeit perhaps indirectly as a result of demand) drove production (or was it rigs?--same thing), but with a six-month lag. Wish I remembered where I saw that. Might have to go back in the way-back machine to a year ago article of mine regarding weekly API figures. 

I would be skeptical of a study that shows a tight correlation between production and prices. Over  the past 100 years or so, production has grown, with demand, at about 1-1.5% per year, steadily, while prices have varied wildly.

I cannot find the logic that allows production to be led by ANYTHING other than demand. In the absence of demand to remove the production from the system, how do you continue to produce. Similarly, if there is not enough production to supply the fuel to your engine, does it run on air?

Producers have historically been willing to produce willy nilly until the tanks, the ditches and other overflow means are swamped.

You have hit on a key point -- lag time. The lag time between a change in price and the corresponding impact on demand is on the order of a year. For supply, the lag time may be 5-10 years. They makes it quite difficult to try to control either demand or supply through price adjustments, or even to decipher the impact when the price changes. But it can be done.

Keep in mind that inventory levels are usually the result of unwise decisions on supply expectations relative to the ensuing reality.

[zorro56 + 1]

Well, I'm new to this but the oil price is subject to political change and yet prediction for a big rise in oil prices has gone berserk. Trump and Iran will not have a long time effect on the price. So what are investors supposed to do? stay away as it's too volatile

[DanilKa + 443]

10 hours ago, William Edwards said:

It is true that I may not have a clue as to your definition and use of the term "comparative inventory. But my limited understanding would suggest that the "inventory" considered therein is a leader, not a follower. I reject this notion

William, you could hear how Art using comparative inventory from the horse mouse in his MacroVoices interview.

Inventory is a part of supply, therefore plays vital role in price formation. Direction of inventory is a good sign, especially one at futures contracts settling point.

I rest my case.

[William Edwards + 708]

3 hours ago, DanilKa said:

William, you could hear how Art using comparative inventory from the horse mouse in his MacroVoices interview.

Inventory is a part of supply, therefore plays vital role in price formation. Direction of inventory is a good sign, especially one at futures contracts settling point.

I rest my case.

And, respectfully, I reject your case. Inventory is NOT part of supply, it is a temporary accumulation/drawdown that is necessary to handle the timing disparity between supply and demand. Inventory fluctuations reveal the magnitude and direction of these temporary fluctuations in the mis-match. They are NOT a permanent supply source or demand element.

[Seek Price 0]

On 5/9/2018 at 8:31 PM, Tom Kirkman said:

I adore The Tylers' wit and dry humor on Zero Hedge.  Yes, I know they are Russian financial trolls, but I respect their intelligence and viewpoints.

Wonderful turn of the verbal dirk, amusingly using Mainstream Media nomenclature  : )

Here Are The Countries That Buy Iran's Oil, And What They May Do Next

To summarize, while Goldman does not believe that the Iran deal alone will result in production declines, the bank concludes that elevated oil geopolitical risks exacerbate the upside risks to Brent forecasts and reinforce its view that oil price volatility will continue to increase.

 

 

How is it relevant to the topic?

[Tom Kirkman + 8,860]

52 minutes ago, Seek Price said:

How is it relevant to the topic?

I was responding to the comment preceding my comment.

If you read the article I linked to, it mentions that Saudi Arabia is ready, willing and able to increase their oil production, to offset any decreases from Iran.

[hameed parappil + 2]

[Mahyar + 16]

As OPEC has continued to restrain output, the market improved and world oil prices remained stable at between $60-$70 fo quite a long time. The current rumors that Saudi Arabia wants to hike its oil output won't change the world price of crude oil in view of the fact that low demand season is approaching. Thus the difference between present Saudi production and increasing output is surely intended to be poured into storages in the U.S.A.

At present oil experts are waiting to see how much more Saudi can pump. However, it is believed that Saudi Arabia is currently producing at maximum capacity and lacks spare capacity. Thus, it couldn't increase output more than the current rates.

 

[Anas bahmed 0]

First Saudi Aramco don’t have big share in USA but in China. 

Saudi Aramco always Controls prices  and the pump whenever they want

Edited May 17, 2018 by Anas bahmed

[Jalanbo Trading Company + 1]

This is my first comment...

I like this website, and appreciate being here with all members....Wishing all the best in trading of the Crude Oil ' business, and hope to have more opportunities to know as much people/friends as possible.

Warmest wishes and with my sincere compliments.

 

Maher N. Jalanbo

 

[Selva + 252]

Welcome, @Jalanbo Trading Company. Nice to have you here!

[Jalanbo Trading Company + 1]

Thank you Selvedina....Warmest wishes....

[Dennis Coyne + 82]

On ‎5‎/‎16‎/‎2018 at 10:11 AM, William Edwards said:

You have done a fine job, Dennis, of displaying historical data on Saudi production levels. I do not agree, however, that past performance is indicative of future performance or underlying capability. Saudi production for the past forty years or so has beed determined, absolutely, by the total global demand for crude. Saudi production capability has been designed with those demand numbers as the basis. Accordingly, I am confident that if the Saudis were convinced of the need for and an attractively-priced outlet for 15 million barrels a day of their quality of crude oil, they could have that capability installed in a couple of years.

To put it in perspective, do you question the ability of the US to produce 12 million barrels a day of crude from 40 billion barres of reserves while doubting the ability of the Saudis to produce twice that quantity from six times those reserves? If not, then be comfortable that the Saudis can supply 20 million barrels a day, probably at a modest cost, if necessary.

William,

The way reserves are reported in Saudi Arabia is very different than in the US.  The last time we had an accurate accounting of Saudi Reserves was in 1979 when proved reserves were about 110 billion barrels and 2P reserves were about 178 billion barrels (Gb).

The fact is that we don't really know the amount of reserves in the KSA, but we do know that about 111 Gb of C+C have been produced from 1980 to 2017.  Most of the fields that have been discovered in Saudi Arabia since 1979 have produced very little oil, any claims about reserves in those fields are highly suspect.  So perhaps Saudi 2P reserves are currently about 67 Gb and proved reserves are about 41 Gb, roughly similar to those of the US (35 Gb of C+C proved reserves at the end of 2016).

In addition, rules are very different in the US relative to most other nations which leads to a much higher rate of oil extraction than most other places.

So though I agree that potentially the US might reach 12 Mb/d in 3 or 4 years (depending on decline rates in the GOM, conventional onshore L48, and Alaska), I doubt KSA output can be ramped up to 12 Mb/d in 90 days and then be sustained for a year in the near term and that is essentially the definition of "spare capacity".   Perhaps in the future it may be possible.

Note that a simple Hubbert Linearization (a problematic method, but in this case there is little audited reserve data for KSA) suggests a URR of about 285 Gb (using 1995-2017 data), when 149 Gb of cumulative output through the end of 2017 is subtracted we are left with 135 Gb of 2P reserves and 84 Gb of proved reserves (based on 2P/1P ratio of 1.6).

I think it is very unlikely we will see 20 Mb/d produced by Saudi Arabia, and also believe they are unlikely to produce 12 Mb/d before 2025, if ever.

Also "a couple of years" to install more capacity is very different from "spare capacity",  I don't believe Saudi Arabia can produce 12.1 Mb/d 90 days from now, that's the claim, perhaps they could produce at 10.5 or even 11 Mb/d.

I will believe it when I see it.

Edited May 17, 2018 by Dennis Coyne

[FABIAN ROAJS 0]

Soy nuevo por aquí!, que el estudio valga la pena. 

[Dennis Coyne + 82]

15 hours ago, William Edwards said:

And, respectfully, I reject your case. Inventory is NOT part of supply, it is a temporary accumulation/drawdown that is necessary to handle the timing disparity between supply and demand. Inventory fluctuations reveal the magnitude and direction of these temporary fluctuations in the mis-match. They are NOT a permanent supply source or demand element.

William,

See

https://ocw.mit.edu/courses/sloan-school-of-management/15-988-system-dynamics-self-study-fall-1998-spring-1999/readings/economics.pdf

Based on that systems dynamics model the changes in stock levels will influence the price.  If there is a rise in stock levels to higher than the desired level (say 30 days of supply or whatever is deemed "normal"), what would you expect to happen to the price level?

That is what comparative inventory analysis does.