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Saudi, UAE Overstate Their Oil Capacities?

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Iranian Oil Minister Bijan Zanganeh said Saudi Arabia and the United Arab Emirates overstate their oil capacities, Iran’s state news agency IRNA reported on Friday. The comments were in reaction to expectations the two countries would fill any supply gap caused by a tightening of U.S. sanctions on Iran. Washington has decided not to renew its exemptions from U.S. sanctions to buyers of Iranian oil. A senior U.S. administration official said on Monday that President Donald Trump was confident Saudi Arabia and the United Arab Emirates would fill any gap left in the oil market.“The U.S. behavior and oil sanctions are not a bluff, but (the result of) very violent hostility toward the Iranian nation,” Zanganeh was quoted by IRNA as saying. “I believe they (Saudi Arabia and the UAE) are overstating their oil capacities,” Zanganeh said. Saudi Arabia’s energy minister said on Wednesday he saw no need to raise oil output immediately after the United States ends its waivers, but added that the kingdom would respond to customers’ needs if asked for more oil.

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Let's take Chinese crude imports by country, in this case from Iran and Saudi, Russia.. Imports from Iran at 541 KBD... US will find that very hard to drop that to zero..

 

image.png.df1fa02002c6263c7e3793b01605d011.png

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The gap is too large to compensate with just two countries...

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1 minute ago, Pavel said:

The gap is too large to compensate with just two countries...

Saudis exported an average of 7 million barrel a day during Feb... With a maximum throughout of 11 million certainly they can cover for Iran's 1.5 million barrel a day

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The rise in oil prices is related to Saudi cut, among other things...

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13 minutes ago, Pavel said:

The gap is too large to compensate with just two countries...

Not just Iran...  Which countries will compensate Venezuela's oil export?

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14 minutes ago, ThunderBlade said:

Not just Iran...  Which countries will compensate Venezuela's oil export?

We're already compensating for this.  The world's oil producers have already absorbed Venezuela's shortfall.  Russia has proven excess capacity (since they are cutting), as does KSA as @damirUSBiHpointed out.  Iraq has a bit in its back pocket too.  

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24 minutes ago, damirUSBiH said:

Saudis exported an average of 7 million barrel a day during Feb... With a maximum throughout of 11 million certainly they can cover for Iran's 1.5 million barrel a day

Exports and production aren't the same thing.  Current production is just under 10mmbbl/day and the maximum throughput is never sustained more than a month. In fact that max is the highest ever production.

https://tradingeconomics.com/saudi-arabia/crude-oil-production

 

Crude Oil Production in Saudi Arabia decreased to 9787 BBL/D/1K in March from 10136 BBL/D/1K in February of 2019. Crude Oil Production in Saudi Arabia averaged 8122.16 BBL/D/1K from 1973 until 2019, reaching an all time high of 11093 BBL/D/1K in November of 2018 and a record low of 2340 BBL/D/1K in August of 1985.

 

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4 hours ago, rainman said:

Iranian Oil Minister Bijan Zanganeh said Saudi Arabia and the United Arab Emirates overstate their oil capacities, Iran’s state news agency IRNA reported on Friday. The comments were in reaction to expectations the two countries would fill any supply gap caused by a tightening of U.S. sanctions on Iran. Washington has decided not to renew its exemptions from U.S. sanctions to buyers of Iranian oil. A senior U.S. administration official said on Monday that President Donald Trump was confident Saudi Arabia and the United Arab Emirates would fill any gap left in the oil market.“The U.S. behavior and oil sanctions are not a bluff, but (the result of) very violent hostility toward the Iranian nation,” Zanganeh was quoted by IRNA as saying. “I believe they (Saudi Arabia and the UAE) are overstating their oil capacities,” Zanganeh said. Saudi Arabia’s energy minister said on Wednesday he saw no need to raise oil output immediately after the United States ends its waivers, but added that the kingdom would respond to customers’ needs if asked for more oil.

Ofcourse the statement made by Iran's Oil Minister has to be true!!! LOL

Saudi and other OPEC and non Opec producers can add 1,500,000bpd for exports into the world crude oil stream!!!

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The US said on Monday that it won’t extend the sanctions waivers for eight countries importing crude oil from Iran. The move could remove around 1.1 million bpd from the market.

Although Rystad Energy anticipated a further tightening of sanctions, the details in the announcement have led us to revise our forecast downward for Iranian crude production.

Rystad Energy forecasts that production will drop to 2.27 million bpd for the second half of 2019, reaching this level by July 2019, which equates to a drop of 0.43 million bpd from current March 2019 levels.

The net effect for the oil market is bullish, as the market will lose more supply from Iran, mostly of medium-sour and heavy-sour quality.

“However, Saudi Arabia and several of its allies have more replacement barrels than what would be lost from Iranian exports in a worst case scenario. This should limit the positive impact on crude prices,” says Rystad Energy Head of Oil Market Research, Bjørnar Tonhaugen.

“Since October 2018, Saudi Arabia, Russia, the UAE, and Iraq have cut 1.3 million bpd, which is more than enough to compensate for the additional loss. However, realistic spare capacity will be cut significantly, reducing room for error in Libya, Nigeria, and Venezuela,” Tonhaugen added.

Rystad Energy, the independent energy research and consultancy in Norway with offices across the globe, says that Iranian crude exports have dropped from around 2.5 million bpd in April 2018 to around 1.1 million bpd currently.

“In our new base case, we no longer expect India to buy Iranian oil after May 2019, and now only expect China and Turkey to continue purchasing Iranian cargoes. We lower our Iranian crude exports estimate from 900 000 bpd to 600 000 bpd from May 2019 onwards, allocating around 500 000 bpd of exports to China and the remainder to Turkey,” Tonhaugen remarked.

The density and sulfur content of the main crude grades exported by the “four cutters” – Saudi Arabia, UAE, Iraq and Russia – are of similar quality to Iran’s main export grades, Iranian Heavy and Iranian Light.

“Saudi Arabia, Russia, the UAE, and Iraq will have no problem replacing Iran’s crude grades, such as Iranian Heavy, Iranian Light, and West Kharoon,” Tonhaugen said. “We believe that Saudi Arabia has ample capacity of Arab Light especially, which is a grade of similar quality to Iranian crudes, due to the current production cuts. Russian Urals and Iraq’s Basra Light is also comparable to Iranian crude quality, while UAE’s main export grades are somewhat lighter and sweeter than Iran’s.”

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OPEC production has dropped two million barrels a day since November. Iran's drop was less than half of that. This reveals more than a million barrels of spare OPEC capacity readily available to get back to November production levels. 

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We are going into the summer season when KSA consumes 3 million a day just to run the A/C and desalination an co-gen plants. But I am not concerned for fundamental shortages. 

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12 hours ago, damirUSBiH said:

Saudis exported an average of 7 million barrel a day during Feb... With a maximum throughout of 11 million certainly they can cover for Iran's 1.5 million barrel a day

You may be correct, Saudi Arabia's output has decreased by 1250 kb/d since Nov 2018, it is unclear whether the Nov 2018 output level was sustainable for several months.  I doubt there will be much of an increase from UAE.  My guess is that sustainable (6 month peak average output level) for Saudi Arabia is about 10.5 Mb/d for crude (as reported by OPEC).  Problem is that output from Venezuela will continue to decline and with recent fighting in Libya there may be declines in output there as well.

So perhaps Saudi Arabia can fill the Iranian gap for a few months and perhaps Iraq can help as well.  It may be a difficult ask.

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3 hours ago, William Edwards said:

OPEC production has dropped two million barrels a day since November. Iran's drop was less than half of that. This reveals more than a million barrels of spare OPEC capacity readily available to get back to November production levels. 

About 1.5 Mb/d of the OPEC decrease was from Iran and Venezuela, I do not expect exports from either of these nations to increase any time soon.  It will be a challenge for OPEC to replace the Iranian exports, especially with further decreases expected in Venezuela and Libya.

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2 hours ago, D Coyne said:

About 1.5 Mb/d of the OPEC decrease was from Iran and Venezuela, I do not expect exports from either of these nations to increase any time soon.  It will be a challenge for OPEC to replace the Iranian exports, especially with further decreases expected in Venezuela and Libya.

At the risk of disappointing your wishful thinking, here are the best numbers available on the reduction of ACTUAL production in March versus last November. OPEC dropped from 32328 to 30022, or 2.3 MMB/D, not 1.5 as you suggest. Saudi Arabia alone dropped from 11,093 to 9787, or 1.3 MMB/D, not the 0.5 MMB/D that you implied.. Iran dropped from 2928 to 2678, or 0.3 MMB/D. Venezuela dropped from 1181 to 732, or 0.35 MMB/D. Iran plus Venezuela dropped 0.65 MMB/D, not the 1.5 MMB/D that you claimed. If Iran reduced imports almost completely, and Venezuela production went to zero, the Saudis could cover the quantity by returning production to November's proven capacity. Further, I have not doubt that they could add more than a million barrels a day above that level and maintain that level if demand allowed such.

You might wish to review your analysis using real numbers, or at least the best ones available to me at this time. If you have better numbers, please identify the source. Mine come from OPEC's monthly report.

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14 hours ago, 50 shades of black said:

I'm sure of one: We will pay more for gas at pump....

Sanctions on oil producers usually also has a negative impact on the consumers since they have to pay the higher price. 

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4 hours ago, D Coyne said:

You may be correct, Saudi Arabia's output has decreased by 1250 kb/d since Nov 2018, it is unclear whether the Nov 2018 output level was sustainable for several months.  I doubt there will be much of an increase from UAE.  My guess is that sustainable (6 month peak average output level) for Saudi Arabia is about 10.5 Mb/d for crude (as reported by OPEC).  Problem is that output from Venezuela will continue to decline and with recent fighting in Libya there may be declines in output there as well.

So perhaps Saudi Arabia can fill the Iranian gap for a few months and perhaps Iraq can help as well.  It may be a difficult ask.

Venezuela is out of the meaningful crude oil export business for an extended amount of time and so it Libya.

UAE maybe able to add 300,000bpd of output to the world market.

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15 hours ago, William Edwards said:

At the risk of disappointing your wishful thinking, here are the best numbers available on the reduction of ACTUAL production in March versus last November. OPEC dropped from 32328 to 30022, or 2.3 MMB/D, not 1.5 as you suggest. Saudi Arabia alone dropped from 11,093 to 9787, or 1.3 MMB/D, not the 0.5 MMB/D that you implied.. Iran dropped from 2928 to 2678, or 0.3 MMB/D. Venezuela dropped from 1181 to 732, or 0.35 MMB/D. Iran plus Venezuela dropped 0.65 MMB/D, not the 1.5 MMB/D that you claimed. If Iran reduced imports almost completely, and Venezuela production went to zero, the Saudis could cover the quantity by returning production to November's proven capacity. Further, I have not doubt that they could add more than a million barrels a day above that level and maintain that level if demand allowed such.

You might wish to review your analysis using real numbers, or at least the best ones available to me at this time. If you have better numbers, please identify the source. Mine come from OPEC's monthly report.

William,

I said that Venezuela and Iran dropped by 1.5 Mb/d, not all OPEC, you had suggested about 2 Mb/d, note that there was a noticeable peak in OPEC output that is unlikely to be sustainable and further decreases from Libya and Venezuela are likely.

Note that I picked Jan 2018 rather than Nov 2018, because that is more likely to be close to the sustainable level of OPEC output. From Jan 2018 Venezuela decreased by 1300 kb/d and Iran about 1100 kb/d to March 2019 for a total of 2400 kb/d.  OPEC output decreased by about 2000 kb/d over that period, so increases from a few OPEC producers such as Libya, UAE, and Iraq made up the difference.  Mine data also comes from the OPEC monthly reports.  Notice how the Saudi "proven capacity" from November 2018 lasted 1 to 2 months, it is not likely that capacity can be sustained for very long.  Saudi Capacity is likely to be about 10.5 Mb/d, this will be adequate as long as other OPEC producers don't decrease by more than a total of 150 kb/d.  Russia could also help fill the gap.  I agree that this may not be a problem, but World spare capacity may be pretty low and this might put upward pressure on prices, particularly if Venezuelan and Libyan output falls in future months.

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14 hours ago, ceo_energemsier said:

Venezuela is out of the meaningful crude oil export business for an extended amount of time and so it Libya.

UAE maybe able to add 300,000bpd of output to the world market.

It is not clear that the 300 kb/d recent peak in UAE output is sustainable, that was a surge in output so they wouldn't have to reduce output so much at the December meeting, all of OPEC plays this game, makes it seem like there is a lot of "spare capacity", but it is not likely to be sustained so much of it is imaginary if it only lasts for one month.

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Three issues not mentioned, first Saudi Arabia wants $85 Brent, which is, in any case, the long-term fundamental, second, and they have said that price (adjusted for inflation) is "fair" for years, by "fair" they mean the customers can afford to pay that price, and that price is required to find sufficient new oil to replace depletion and accommodate growing demand; third, they have held back on pushing up the price because of fears that would increase U.S. shale oil output; except latest news is shale growth is stalled. The only reason for them to increase output before Brent hits $85, would be to please President Trump. Let's see how badly they want to please him.

https://seekingalpha.com/article/4256704-schlumbergers-predicted-shale-slowdown-now-bust-baker-hughes-offshore-rig-count-now-35

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10 minutes ago, Andrew Butter said:

Three issues not mentioned, first Saudi Arabia wants $85 Brent, which is, in any case, the long-term fundamental, second, and they have said that price (adjusted for inflation) is "fair" for years, by "fair" they mean the customers can afford to pay that price, and that price is required to find sufficient new oil to replace depletion and accommodate growing demand; third, they have held back on pushing up the price because of fears that would increase U.S. shale oil output; except latest news is shale growth is stalled. The only reason for them to increase output before Brent hits $85, would be to please President Trump. Let's see how badly they want to please him.

https://seekingalpha.com/article/4256704-schlumbergers-predicted-shale-slowdown-now-bust-baker-hughes-offshore-rig-count-now-35

Hi Andrew, how's it going with you these days?  Haven't seen your comments since the old Oilpro days.

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11 hours ago, Andrew Butter said:

Three issues not mentioned, first Saudi Arabia wants $85 Brent, which is, in any case, the long-term fundamental, second, and they have said that price (adjusted for inflation) is "fair" for years, by "fair" they mean the customers can afford to pay that price, and that price is required to find sufficient new oil to replace depletion and accommodate growing demand; third, they have held back on pushing up the price because of fears that would increase U.S. shale oil output; except latest news is shale growth is stalled. The only reason for them to increase output before Brent hits $85, would be to please President Trump. Let's see how badly they want to please him.

https://seekingalpha.com/article/4256704-schlumbergers-predicted-shale-slowdown-now-bust-baker-hughes-offshore-rig-count-now-35

The Saudis want $85/B. Similarly, I want $100,000/D for my services. The Saudis will refuse to produce if they do not get the $85/B. Similarly, I will refuse to provide my services if I do not get the $100,000/D. Are we both not in danger of being unrealistic in what the market and our competitors will allow? 

It might be worthwhile to remember that, ultimately, the consumer, not the producer, determines the price, since it is the acceptance price, not the offering price that activates the transaction. This adds another reason to your only reason list of why the Saudis will sell before Brent reaches $85/B. Too little oil will be sold with an $85 floor for them to achieve their revenue requirements, so they will have to sell for less. Sure, if they will accept a market production share of 2-4 million barrels a day they might boost the price to the eighties, but I suspect that that choice will not be palatable.

Interestingly enough, there is a simple method for the Saudis to achieve the $85 number -- just set their price at $85/B and accept nothing less. That might be a worthwhile experiment!

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On 4/27/2019 at 1:43 PM, D Coyne said:

It is not clear that the 300 kb/d recent peak in UAE output is sustainable, that was a surge in output so they wouldn't have to reduce output so much at the December meeting, all of OPEC plays this game, makes it seem like there is a lot of "spare capacity", but it is not likely to be sustained so much of it is imaginary if it only lasts for one month.

The UAE production can be sustained for over 3-6 months for 300,000bpd of additional crude volumes. They have a built in mechanism for such emergencies , their contingency plan to adjust volumes as needed. It may not be easy and wont be easy , but they can pull it off.

 

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ceo_energe

Will believe it when I see it.  Claims are just claims, until backed up by 3-6 months of output, they might be able to pull off 3 months, we will see, I think they would be wise to wait for $80/b and then gradually raise output if they can.

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