Tom Kirkman

Oil Declines as Saudi Arabia Restores Capacity Ahead of Schedule

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A multitude of Western MSM headlines blame Trump for falling oil prices.

Screenshot_20190925-180428_Brave.thumb.jpg.3e758d88afaff2193d11091082383e89.jpg

 

Here's one that doesn't:

Oil Declines as Saudi Arabia Restores Capacity Ahead of Schedule

(Bloomberg) -- Oil extended declines as Saudi Arabia was said to be ahead of schedule in restoring its output capacity.

Futures lost as much as 1.5% in New York after dropping 2.3% on Tuesday. Saudi Aramco’s production capacity now exceeds 11 million barrels a day, beating a self-imposed deadline by about a week, according to people with knowledge of the situation. The Abqaiq processing plant has 4.92 million barrels a day of capacity available and Khurais 1.3 million, they said, which are at or above the levels before the Sept. 14 attack.  ...

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Jabbar will be happy  :) 

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Okay so I'm not an economist but seems to me that lower oil prices means lower gas prices and that means people have more money to spend on other things that matter. So how is lower oil prices a bad thing?

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(edited)

40 minutes ago, JZBoozell said:

So how is lower oil prices a bad thing?

It's not for the consumer, but oil and / or gold price can be linked to signs of economic strength, global growth, use as a safe haven in times of uncertainty, lots of things. That's what the anti-Trump articles Tom posted are suggesting. China talks not going well, so oil price drops. But look at the thread title. That's closer to the 'truth'. 

Edited by DayTrader
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So everyone saw the photographs, right?

Who in his right mind really believes the Saudis are back up and running at capacity?

They have 130 million barrels in reserve storage. I strongly suspect they're making up a shortfall to paint a pretty picture by the numbers.

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(edited)

57 minutes ago, Gerry Maddoux said:

back up and running

Haha agreed, I don't believe a word Saudis say ever. That's why I said closer to the truth. The news of them saying it is what has dropped price. 

They said 3 months, then 1 month, then all fine, nothing affected, then I saw thing saying 8 months and started thread about it, now it's we've restored capacity. Whatever Saudi Arabia says, it's probably best to ignore. 

#technical analysis good. 

#MSM bad. 

Edited by DayTrader
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1 hour ago, Gerry Maddoux said:

So everyone saw the photographs, right?

Who in his right mind really believes the Saudis are back up and running at capacity?

They have 130 million barrels in reserve storage. I strongly suspect they're making up a shortfall to paint a pretty picture by the numbers.

 

1 hour ago, DayTrader said:

Haha agreed, I don't believe a word Saudis say ever. That's why I said closer to the truth. The news of them saying it is what has dropped price. 

They said 3 months, then 1 month, then all fine, nothing affected, then I saw thing saying 8 months and started thread about it, now it's we've restored capacity. Whatever Saudi Arabia says, it's probably best to ignore. 

#technical analysis good. 

#MSM bad. 

 

Why The Saudis Are Lying About Their Oil Production

Saudi Arabia’s comments about its hydrocarbons industry have long been regarded by industry experts as being as believable as China’s comments about its economic growth: that is, not at all. Saudi Arabia’s skill in lying is definitely improving, though, from the outright transparent lies about its level of oil reserves, spare capacity, and why the omni-toxic Aramco should nonetheless be valued at US$2 trillion.

Its latest lies - along the lines of ‘everything is fine after the attacks and we will be back to full production really quickly’ – are relatively nuanced. “The Saudi statements may not contain any direct falsehoods as such but nor are they entirely being fulsome with the truth,” Richard Mallinson, senior energy analyst for Energy Aspects, in London, told OilPrice.com last week.

The stage was set for the Saudis’ latest lying extravaganza with the aerial attacks on its massive Abqaiq oil processing facility and Khurais oil field launched, according to various sources, by Houthi ‘rebels’ in Yemen or by Iranian operatives in Yemen or in Iran. The effect of the combined attack on Abqaiq and Khurais caused the temporary suspension of 5.7 million barrels per day (bpd). This equates to well over half of Saudi Arabia’s actual crude oil production capacity, not the capacity figure that Saudi has plucked out of nowhere for geopolitical power purposes in recent years, and resulted in the biggest rise in oil prices in a single day ever.  ...

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I'm used to the Saudis' falsehoods, Tom, but this time people may actually get badly hurt, and I'm not talking just financially. There's a confluence taking place--nearly silently, it seems. 

1) According to Baker-Hughes, we have laid down 150 drilling rigs in the US September 2018 to now. 2) Outside of purchase of some tracts off Guyama and some seismo work in Vaca Meurto, there had been precious little exploration for big strike zones since the crash of 2014. 3) Now this Saudi thing. 

If the Saudis are maintaining their supply train by tapping stored reserves (as I strongly suspect), they can keep up the charade until January. Well-bore statistics in child wells (infills) in the Permian, along with fewer DUC's to bolster the #'s, means that US tight oil production should begin to decline about January. The strategic reserves both here and in Norway have been drawn down. Unless the Saudis are telling the truth for a change, we're going to see a global supply crunch  . . . .  about January. And I mean, at that time, what seems like a large buffer now will look like a nightmare then. With the world using 100 million barrels of crude a day, very few people realize just how thin our buffer is. And global prices don't even come close to taking that into consideration. If I'm right, we're going to look back on these prices of $50-55 and shake our heads in wonderment. But by then, if I'm right, there are going to be people getting very cold.

Solution? They should tell the truth for a change, so the world price would reflect it. The US and Canadian drillers would put a bunch of rigs to work. We might not offset their deficit completely but we'd come close. They'll lose a lot more face by lying about something than by telling the truth, and if a global catastrophe occurs, they can put that Aramco IPO where the sun don't shine, because it just got cleaved in half.

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The lying Saudis have supposedly been lying about their spare capacity for years. The following article suggests their spare capacity would be .5-1 million barrels per day instead of their stated 2-2.5 million barrels per day. 

https://oilprice.com/Energy/Crude-Oil/Why-The-Saudis-Are-Lying-About-Their-Oil-Production.html

So they lost 5.7 million barrels per day, but supposedly got 2 million back online pretty quick. 7 of the 11 gas separator spheres got hit and the experts estimate 6-12 months to have them fixed.

If we assume they had a spare capacity of 1 million barrels per day, and they turn that on, we still have a deficit of 2.7 million barrels per day.  Since their reserves are 130 million barrels......130 divided by 2.7 is...48 days.  48 days from September 14 is November 1.  

This is very important to those of us here who are options traders.  I have already taken advantage of the Saudi lying and bought January calls; they would have been much more expensive if the Saudis had not been lying so profusely.

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(edited)

28 minutes ago, Punkweed said:

The lying Saudis have supposedly been lying about their spare capacity for years. The following article suggests their spare capacity would be .5-1 million barrels per day instead of their stated 2-2.5 million barrels per day. 

https://oilprice.com/Energy/Crude-Oil/Why-The-Saudis-Are-Lying-About-Their-Oil-Production.html

So they lost 5.7 million barrels per day, but supposedly got 2 million back online pretty quick. 7 of the 11 gas separator spheres got hit and the experts estimate 6-12 months to have them fixed.

If we assume they had a spare capacity of 1 million barrels per day, and they turn that on, we still have a deficit of 2.7 million barrels per day.  Since their reserves are 130 million barrels......130 divided by 2.7 is...48 days.  48 days from September 14 is November 1.  

This is very important to those of us here who are options traders.  I have already taken advantage of the Saudi lying and bought January calls; they would have been much more expensive if the Saudis had not been lying so profusely.

 

Did you see the comment at the bottom of that article?

Sorry I don't have an account so posting as a guest but I found that quite an interesting thing for someone to have said as many people in the industry have always assumed they could crank up production with ease especially after they caused the 2014 crash in prices.

Cheers

N

Edited by El Nikko
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The comment at the bottom of the article reads:

Moreover, the Saudis haven’t been transparent enough about their production capacity. Their oil production peaked in 2005 at 9.65 million barrels a day (mbd) and has been in decline since. In my estimate, their production capacity doesn’t exceed 8.5 mbd. Moreover, they never had a spare capacity of 2 mbd as they have been claiming because to have such a spare capacity would mean that their production capacity is 12 mbd and this figure has never been tested. When they say they are producing 10 mbd, at least 1.5 mbd come from their stored crude.

With estimated stored crude oil of 130 million barrels , the Saudis could continue to meet their customer needs for less than a month after which their stored oil would have been totally exhausted. The proof they aren’t telling the truth about the timetable for repairs is that they have been telling their customers that some lighter grades would likely be replaced with heavier crude grades.

The truth about Saudi oil potential and reserves will eventually come out. And when it does, the global oil market will get the shock of its life with a horrendous global oil crisis to match.

Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London

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The comment appears to assume that the Saudis have not restored 2 million barrels per day like they have said.  It assumes very little or no spare capacity at all.  130 million barrels in reserve divided by 5.7 million barrels per day of supposedly destroyed capacity would leave enough oil to meet exports for 22 days.  It does not take into account other articles that have stated that most of the oil slated for delivery in October had already been pumped into the tankers sitting offshore.

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Checked that guy out he's worked for all kinds of organisations, not that, that means he's right, however he appears to claim that the Saudi's do not have the production capacity they claim i.e that they can easily ramp it up to 12 million bbl/day and that they've been playing games with their reserves especially during the 2014 disaster caused by them opening the spigots, shale drilling going 'balls out' and Russian production reaching all time highs.

Of course we're unlikely to ever know the truth about Saudi production capacity (maybe...just maybe when they float their IPO?) and reserves but it's an interesting hypothesis to think about, imagine they don't have the capabilities they claim.

I'm looking forward to seeing how this plays out, the whole 'drone attack' thing seems extremely strange to me especially if it turns out they got everything fixed after a week or so....must be extremely rubbish cruise missile because if we fired a couple of tomahawks at the same facility I very much doubt it would be back on stream in a years time. No tin foil hat here....I do think these were drones launched from Yemen and with Iranian help due to the proxy way that is playing out across the ME but I'm not ruling anything out at this point.

Cheers...I'm just waiting for the next survey ;)

 

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Lots of great comments here regarding KSA's reliability on information. If they are back up to running, how about some pictures of the facility after the repairs? I agree it all sounds very fishy. And the comment about how KSA's facility would still be smoldering if the US had hit it with some TommyHawk missiles. Who knows what's going on over there.

Saw discussion on Art Berman's Twitter feed regarding Insider attack on the KSA facility?, again who knows what? All we know for sure is the price of crude is down.

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So does it really come down to we either take their word for it or not? It's astounding this (pre-attack or post) should be a mystery and I've worked in Saudi and the ME...I had no idea.

One OT point though is when I was there for a few years we were drilling a lot of unconventional wells targeting channel sand deposits which would appear and vanish at the drop of a hat, it was fun geosteering them with very advanced tools but surely they wouldn't be going after those kind of targets if there was a vast resource of easy to get to oil...some of the wells we drilled to our best ability with tripple and quad combo BHAs and rotary steerables only got 20% drilled in the pay zone.

I don't want to sound too selfish but another round of attacks wouldn't hurt right now 😆

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(edited)

On 9/25/2019 at 8:35 PM, El Nikko said:

Checked that guy out he's worked for all kinds of organisations, not that, that means he's right, however he appears to claim that the Saudi's do not have the production capacity they claim i.e that they can easily ramp it up to 12 million bbl/day and that they've been playing games with their reserves especially during the 2014 disaster caused by them opening the spigots, shale drilling going 'balls out' and Russian production reaching all time highs.

Of course we're unlikely to ever know the truth about Saudi production capacity (maybe...just maybe when they float their IPO?) and reserves but it's an interesting hypothesis to think about, imagine they don't have the capabilities they claim.

I'm looking forward to seeing how this plays out, the whole 'drone attack' thing seems extremely strange to me especially if it turns out they got everything fixed after a week or so....must be extremely rubbish cruise missile because if we fired a couple of tomahawks at the same facility I very much doubt it would be back on stream in a years time. No tin foil hat here....I do think these were drones launched from Yemen and with Iranian help due to the proxy way that is playing out across the ME but I'm not ruling anything out at this point.

Cheers...I'm just waiting for the next survey ;)

 

They had Scotiabank's commodity strategist on BNN today and he discusses Abqaiq and the Saudis production.  He said Abqaiq could take a year to be fully repaired.

https://www.bnnbloomberg.ca/video/global-oil-market-tighter-than-investors-are-led-to-believe-scotiabank~1791244

Edited by PINGFan
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11 minutes ago, PINGFan said:

They had Scotiabank's commodity strategist on BNN today and he discusses Abqaiq and the Saudis production.  

https://www.bnnbloomberg.ca/video/global-oil-market-tighter-than-investors-are-led-to-believe-scotiabank~1791244

 

Thanks for that, he sounds quite upbeat which is desperately needed at this point especially for shale drillers. I really hope he's right.

I was almost salivating 😆

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2 minutes ago, El Nikko said:

 

Thanks for that, he sounds quite upbeat which is desperately needed at this point especially for shale drillers. I really hope he's right.

I was almost salivating 😆

No problem.  He does sound upbeat, but that seems more for Q2 of next year for the price of oil.  

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3 months

1 month

Production not affected

8 months

1-3 months

All fine, IPO on the way

Over a year

All fine again

Yawn

image.png.923aa0eb7913dbe05c2b9f4ac21ec1b0.png

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6 minutes ago, DayTrader said:

3 months

1 month

Production not affected

8 months

1-3 months

All fine, IPO on the way

Over a year

All fine again

Yawn

image.png.923aa0eb7913dbe05c2b9f4ac21ec1b0.png

I am suspicious as to why Saudi was even planning an IPO to begin with.  I bet they don't have nearly the amount of oil they are saying they have and want to get as much money as possible before their reserves before they are depleted.

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The stabilization towers remove the hydrogen sulfide from the oil, and several were hit in the attack. Now the Saudis are saying they can still fulfill their contracts, but their customers must accept a heavier oil, which appears to have more hydrogen sulfide. 

The million dollar question for all investors here, is can they still export their crude oil without processing it at the abqaiq plant?

7 of the 11 gas separator spheres got hit. They separate the natural gas from the oil. Can they still export the crude oil using tankers if it is mixed with natural gas or is it too dangerous?

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24 minutes ago, Punkweed said:

The stabilization towers remove the hydrogen sulfide from the oil, and several were hit in the attack. Now the Saudis are saying they can still fulfill their contracts, but their customers must accept a heavier oil, which appears to have more hydrogen sulfide. 

The million dollar question for all investors here, is can they still export their crude oil without processing it at the abqaiq plant?

7 of the 11 gas separator spheres got hit. They separate the natural gas from the oil. Can they still export the crude oil using tankers if it is mixed with natural gas or is it too dangerous?

Yes they can export their crude without the abquiq plant. The other fields also have GOSPs so they can send their oil directly into an export pipeline.  That is where the rest of the daily production comes from.  As far as I know, they have to stabilize the oil to put it in a ship.  The stabilization towers lower the vapor pressure of the oil after the gas has already been separated.  Definitely can't ship the oil with associated gas.  Out in West Texas the oil and gas are separated at the wellhead and after that it's OK to put the oil in a pipeline.  

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