Crude Oil

  • CBS News – 60 Minutes: Saudi Arabia Bullish On Oil’s Future
    The good news is that the price of oil is falling – a lot; it’s also the bad news if you’re determined that the U.S. should kick its addiction to foreign oil. President-elect Barack Obama says now is the time to do that, even with the economy in recession. But Saudi Arabia, the world’s largest oil supplier – with the U.S. as its number one customer – is pulling all the levers and spending billions to keep the oil age going. 60 Minutes correspondent Lesley Stahl went to Saudi Arabia a few weeks ago to meet one of the most powerful men in the world, Ali Al-Naimi, the Saudi oil minister and de facto head of the OPEC oil cartel.

  • The Oil Kingdom: Part One (12:33)
    Lesley Stahl meets with officials in Saudi Arabia
    and takes a tour of its vast petroleum facilities,
    which are gearing up to produce even more oil.


    The Oil Kingdom: Part Two (11:30)
    Lesley Stahl takes an inside look into the world of
    Saudi Aramco, the world leader in crude oil production
    and the country’s sole source of wealth and power.

    Comment Two-thirds of last night’s 60 Minutes was devoted to Saudi Arabia and their oil production. The Saudis are promising a huge increase in production and wowed the socks off Leslie Stahl by showing her some massively large production facilities.

    However, nobody questioned this goal in the interview (Matt Simmons?). Last night the Saudis confidently said they could go to 12 to 15 million barrels. There are two problems with this claim.

    First, as we detailed on June 26, the Saudis do not allow independent verification of oil production. They just tell the world what it is:

    One of the more intriguing stories in “Twilight in the Desert’, Simmons’ new book on the state of Saudi fields, is paucity of reliable data on Middle East production in general and Saudi production, specifically. Simmons is one of the first people to point out the fact that much of the data underlying “official” production numbers are unreliable, based largely on the findings of Petrologistics, a “powerful” information collecting company located over a supermarket in Geneva, Switzerland.

    According to Simmons, this company is usually the first one the media “glums” onto each month when the latest Middle East production numbers are released. This data, he alleges is gathered from a worldwide network of harbor “spies” located in the world’s top oil export countries.

    “They look through a pair of binoculars and a sort of a gauge in their windows to check [tanker] plumb lines as to how much oil is being loaded into the tankers. And [Conrad Gerber’s] story is he can’t disclose the names of his harbor spies; he can’t even call them at home because when he used to do that, one of them got killed.

    What’s interesting is that there are twenty other people… sources that report Middle East oil, but they all seem to get their first data from Petrologistics. And again, no one has ever basically questioned, Well how does he get that data?” Simmons explained. He pointed out the obvious problem that even with harbor spies using binoculars and plumb lines, there is no way to know the grade of the oil and how much being pumped aboard the vessel or its ultimate destination.

    “You have no idea if its 1.8 million barrels or 2.2 million barrels. You have no idea where the tankers going,” he said. “But again, no one ever thought about where this data comes from.

    “We have an energy data system created today that is simply rubbish.”

    Second, if Saudi claims of ramping up production sound familiar, they should:

    • Saudi-US Relations – (August 19, 2004) SAUDI ARABIA READY TO BOOST CRUDE OIL OUTPUT
      Kingdom holds last OPEC spare capacity as crude price nears $50
      Saudi Arabia, the world’s largest oil producer, announced August 11 that it was ready to increase the Kingdom’s crude oil production to help reduce and stabilize high oil prices. The Kingdom estimated that it could increase production by 1.3 million barrels of oil per day (BPD) if necessary. . . . Naimi noted Saudi Arabia already increased oil production during the past three months to meet the growing demand. The increases amounted to over one million barrels per day, bringing to over 9.3 million barrels per day.
    • The Sydney Morning Herald – (April 27, 2005) Bush fails to persuade Saudis to cut oil price
      While the talks were taking place, a Saudi spokesman outlined a plan to the media that would involve spending $US50 billion ($64 billion) to increase production capacity to 12.5 million barrels a day by 2009 and to 15 million barrels a day in the subsequent decade. The Saudis currently produce 9.5 million barrels a day.
    • Xinhua – (July 30, 2007) Saudi Arabia’s oil production reaches 10.8 mln bpd
      Saudi Arabia’s crude oil production capacity has reached 10.8 million barrels per day (bpd), the country’s state oil company Saudi Aramco announced Monday. The company is sparing no efforts to raise its oil production to meet the market demand, said Armaco’s Mid-Year Accountability Report. The Khursaniyah field is expected to start operations in December 2007, with a capacity of 500,000 bpd of Arabian light crude, said the report, noting the company will boost its exploration of non-associated gas fields. During the first half of 2007 the company discovered two oil fields, Daivazah and Mabrook, adding the number of oil and gas fields under Saudi Aramco’s management to 102, it said. Saudi Arabia is the world’s largest oil producer and exporter and plans to raise its production capacity to 12.5 million bpd in 2009.
    • Bloomberg.com – (September 11, 2007) Saudi Plan to Boost Output Opposed by Some in OPEC
      Oil prices above $77 a barrel are a burden to consuming nations, prompting some Persian Gulf producers to discuss raising OPEC quotas by at least 500,000 barrels a day at the meeting today. The group’s biggest producer, Saudi Arabia, proposed an increase, Iraq’s oil minister said before the talks started.

    Despite these claims, as the chart below shows, the Saudis still cannot produce more than they were in the late 1970s.

    <Click on chart for larger image>

    • The Wall Street Journal – Oil Bulls Won’t Like the Answer to Saudi Arabia’s Production Equation
      When demand for oil is rising, members of the Organization of Petroleum Exporting Countries take extra portions from the expanding output quota pie. But when it falls, as now, they are supposed to share the pain of lower production even as oil prices are declining, a double blow to cash flows. As the organization’s biggest member, much of the burden of managing all this rests on Saudi Arabia. Yet it also must consider its customers and long-term demand. This largely explains OPEC’s recent decision to put off further output cuts, even as crude prices continued sliding. It also is why oil bulls can expect little relief from Riyadh next year. Saudi Arabia’s current output quota is 8.5 million barrels a day. After domestic use, that leaves seven million barrels for daily export. Ahmad Abdallah, commodity analyst at financial-services firm GaveKal, points out that Saudi Arabia’s 2008 budget was set at $109 billion. With oil exports accounting for just under 90% of public revenues, that equates to an oil price of $38 a barrel to balance the budget. The OPEC basket price has averaged $98.50 a barrel this year.

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