JPM Sees Incremental Saudi Crude Supply Offset By Declines In Iraq, Iran Production

Tyler Durden's picture

While the market appears to be happy with promises for incremental crude output by Saudi Arabia which has now broken off from the broader OPEC cartel and is doing its own pro-US thing, JPMorgan, which at last check still had a Brent target of $130/bbl, once again introduces an unpleasant dose of reality in the crude story by noting that any increase in crude output by the rogue OPEC state may be offset by production drops in Iraq and Iran. Will Saudi now promise to offset even that drop and hike output to 11 mbd or some other more unbelievable number? Stay tuned for more lies from the "peak oiled" kingdom.

From JPM's Larry Eagles:

Reports vary, but there are indications that Saudi Arabia is poised to increase July crude production to 10.0 mbd. This is not confirmed, and it greatly depends on how they offer it to the market, i.e. are buyers willing to take additional crude at OSPs. If the Saudi increase materializes, the market appears better balanced, as we projected a 600 kbd 3Q2011 shortfall at Saudi production of 9.2 mbd. But developments elsewhere leave us cautious.

First, Iraq is critical to incremental supply, adding about 500 kbd over 2011-2012. Production continues to ramp up, but exports recently hit one of the hard constraints we have flagged for some time. The Basrah loading terminal is said to be operating at maximum capacity, with some additional volumes from Khor Al Amaya terminal. This is limiting southern exports to about 1.7 mbd. Relief will come with new single point moorings (SPM), but the first is not likely to come online until late 2011 at the earliest. Some reports show it coming online in mid-2012. Once it comes online exports should surge, but in the meantime our 3Q and 4Q2011 production outlook may need to be scaled back by 120 kbd and 240 kbd, respectively.

Iran is another piece to the puzzle. Iran reportedly drew down floating crude storage by some 12-14 mb in May. Floating storage stood at about 6 mb at the end of May 2011 versus 30 mb in May 2010. Over June-September last year, Iran reduced floating storage by 26-28 mb. This cannot be repeated in summer of 2011.

And some other news flow analysis from JP Morgan:

Several news points of interest from China: (1) China’s M2 money supply growth continued to moderate to 15.1% in May, down from 15.3% in April. New loan creation fell to 552 billion yuan in May compared to 740 billion yuan in April. (2) The NDRC reports that May refinery throughput was up by 4.4% yoy. It calculates implied oil demand rose by 5.2% yoy. (3) Surveys point to a 5% mom reduction in crude throughput in June. This is consistent with an increase in refinery turnarounds to 650 kbd in June and July versus 160 kbd in May.

Analysis:

(1) Chinese policy continues on a path of measured slowing as expected. Our economists expect an uptick in May inflation (announced tomorrow, June 14) to 5.4%. Inflation is expected to peak in June or July. (2) The NDRC data often varies quite widely from the final NBS data. Our May implied demand growth projection stands at 9% yoy, consistent with expected strong crude runs on limited turnarounds. (3) The refinery survey data highlights a dilemma for China. We expect demand to rise by at least 200 kbd qoq in 3Q2011 as refiners are moving into maintenance. The government has taken measures to limit exports to ensure steady supply, but a sharp drawdown in stocks is likely and imports may be required.

 

Naphtha cracks (versus Dubai crude) continue to retreat. Cracks dropped below -$6/bbl, over $9/bbl down on mid-May highs.

Analysis:

The drivers behind weak naphtha cracks are manifold. As expected, a ramp-up in natural gas liquids production is finally having an impact, as is substitution by LPG. Unplanned cracker outages in Japan and Taiwan are also impacting naphtha demand. The critical driver, however, is the sharp pullback in industrial production (IP) following a period of inventory building in finished goods over 4Q2010 and 1Q2011. Our economists expect some relief in the 3Q2011 as IP is projected to rise by 5.2% yoy following 4.1% growth in 2Q2011. Naphtha should see support end year as IP continues to rise to 5.4% and the seasonal rise in LPG demand begins to price it out as a petrochemical feedstock.

 

Japanese utilities boosted LNG and oil use in power sharply as nuclear power utilization fell to only 41% in May. Fuel oil consumption increased by 50% yoy and direct crude use was up 126%. Kansai Electric Power is the third power company to warn of shortages and ask consumers to voluntarily cut power consumption.

Analysis:

After a pause in inventory build-up immediately following the Tohoku earthquake, oil consumption in power and purchases are again on the rise. Western Japan is also being impacted as nuclear plants that move into maintenance are facing delayed returns.

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overmedicatedundersexed's picture

Taking Libya off line has no impact I guess.

Franken_Stein's picture

 

Our current financial system is like Jabba the Hut's party boat.

 

malikai's picture

Seriously. What the fuck was Jabba going to do with Leia?

Sudden Debt's picture

THE MAN HAD A 50 INCH TONGUE!! WHAT DO YOU THINK?!

you should expand your porn collection man.... seriously...

 

 

hedgeless_horseman's picture

That scene was pretty cool, especially when Luke almost fell into Barney Frank's asshole. 

I would wager that Jabba wasn't the first, nor the last, Hutt to host a party above the Massachusettes Congressman's anus.

SheepDog-One's picture

$130/bbl assuming all is well from here. Throw in the mid east war which is about to go absolutely bananas, and oil at $130 will look very cheap.

SoNH80's picture

Kowledgeable people (industry analysts) are telling me to be prepared for $150-$200, soon.

hedgeless_horseman's picture

Classic Kunstler this morning:

Economies are caught in the permanent compressive contraction of fossil fuel based activities. When you hear a politician utter the word "growth" note that he/she is speaking out of his/her ass. Contraction is contraction, not growth. We're done with growth of that kind because our fuel supplies are shrinking, not growing. The vaunted "recovery" is a political three-card-monte trick.

http://kunstler.com/blog/2011/06/a-distant-sound-of-churning-1.html

AnAnonymous's picture

Saudi Arabia is once again exhibiting what is leading them  (and a whole region that has to align on them) to the ruin: the impossibility to play the game according to their own interests. No matter what, they have to express US best interests, even when the US best interest are destructive to them.

 

Saudi Arabia, through their partnership with the US, have grown unable to express other interests save the US interests. A perfect vassal as the vassalage oath in older days wanted vassals to be.

It is another nice example of freedom and what it means in the US driven world.

SoNH80's picture

It is a little more complicated than that.  Europe and Japan, and Asia generally, are the primary markets for Saudi oil.  (The U.S. gets most of its oil from Western Hemisphere sources).  The Europeans and Japanese are incapable of propping up the House of Saud militarily, so the U.S. does the "job", with some payoff in the form of the U.S. dollar standard for oil purchases worldwide.  Though, I think it's a net bad deal for the American people.

I Am Ben's picture

SA using petrodollars to buy US debt

SoNH80's picture

True, but it isn't enough to balance the insane costs of the ME-NA wars, occupations, kinetic non-war military actions, etc. etc.  The Saudis fear their own people, they fear Iran, that's why they are so cooperative with the U.S. government, their ultimate insurance policy.  Back in '73-'74, before the Iranian Revolution, the Saudis were kicking the U.S. in the butt over the Yom Kippur War.  Now, times have changed.  It's a Faustian bargain for both sides IMHO.

I Am Ben's picture

They also fear a low oil price.

 

Everytime someone buys my debt, I consider them a sucker.

AnAnonymous's picture

No. The Saudis bit the bait: they believed the US when the US claimed they could make the Saudis rich. It is why they were so cooperative with the US at start. Now that they have filled their coffers with all kinds of piece of papers, mostly backed against the USD, they are trapped in a corner.

They have now understood that they exchange their vast reserve in the most desired commodity in this era, oil, against the promise of being paid with something sometimes in a future. They are terrorized because they understand that they have no control over that side of the deal, that the whole paper they accumulate is worth nothing more than the wword of the US.

In their downfall, they are dragging with them a whole region (and possibly a part of the OPEC members) as they perfectly played the pet role the US wanted: the insider  to break the oil cartel from within.

Not only they must fear their neighbours, that will want a showdown to pay back Saudi Arabia's effects but they fear the US as they know that the US will favour a war involving Saudi Arabia, once the oil flow is short, to benefit the US military industrial complex.

They will pay their alliance to the US, just like the Cree who sided with the US paid their alliance or the Haitians paid for helping the US during the war of independence.

The US citizens nature is eternal. Expect that what was done in the past is done in the present and will be done in the future.

SoNH80's picture

"The U.S. citizens nature is eternal".  I have seen that puzzling catchphrase repeated on ZH by others, presumably from commenters in the Global South.  I don't think that these arrangements, that date roughly from 1945, are "eternal," and when they disappear, it will be a very fast process.  I would recommend to people in other nations: prepare for the end of the U.S. dominated system, it may happen when you least expect it.

AnAnonymous's picture

The US citizen nature is eternal gives for that example that the outcome is known for sure.

The Saudis were faithful servants/allies to the US and are going to be treated like the US treated faithful allies in the past. No surprise.

Haitians, Crees (and many others) were examples given to show that the US has not changed since their inception. It is nothing new.

SoNH80's picture

Your knowledge of American history is a little wobbly... the Hatians were ruled by the French, and the Cree live/d in Canada.  Why don't you Chinese hurry up and take over the Middle East already, no time like the present.  99% of the Americans would like nothing more than to never hear about Saudi Arabia and the rest of those places again....

AnAnonymous's picture

The Haitians were ruled by the French. And? It did not change the facts that haitian units of free men joined voluntarily the US side in order to help during the war of independence.

And the Indians wanted to build a confederation of Indians down from Florida up to Canada.

 

99 pc of the US citizens would not want to hear about the Saudis? Sure. How could they benefit from the USD and free emission of currency.

Sounds more like US citizens did not want to hear about Haitians helping them in the war of Independence. At this point, it would be right as the US citizen nature is eternal.

AnAnonymous's picture

Run To The Hills- Iron Maiden

White man came across the sea
He brought us pain and misery
He killed our tribes, he killed our creed
He took our game for his own need

We fought him hard we fought him well
Out on the plains we gave him hell
But many came too much for Cree
Oh will we ever be set free?

Riding through dust clouds and barren wastes
Galloping hard on the plains
Chasing the redskins back to their holes
Fighting them at their own game
Murder for freedom a stab in the back
Women and children and cowards attack

Run to the hills, run for your lives
Run to the hills, run for your lives

Soldier blue in the barren wastes
Hunting and killing their game
Raping the women and wasting the men
The only good Indians are tame
Selling them whiskey and taking their gold
Enslaving the young and destroying the old

Run to the hills, run for your lives

 http://www.youtube.com/watch?v=4u-LMHZwY6w

Live, world slavery tour (1985)

Far from being the best performance but the best I found.

Live performance at Donigton, on August, 8th, 1992 was far, far better. Best concert ever by the way.

AnAnonymous's picture

It is a little more complicated than that.  Europe and Japan, and Asia generally, are the primary markets for Saudi oil.  (The U.S. gets most of its oil from Western Hemisphere sources).  The Europeans and Japanese are incapable of propping up the House of Saud militarily, so the U.S. does the "job", with some payoff in the form of the U.S. dollar standard for oil purchases worldwide.  Though, I think it's a net bad deal for the American people.

 

The US partnership to SA started in the 1950s when USSR was still around.

The Chinese work for the US so they indeed need oil to produce for US citizens.

Europeans are here as trading partners to increase the volume of consumption achieved by the US.

The world is organized to support the US standard of life. US world order.

SoNH80's picture

Or, does the U.S. taxpayer serve as Santa Claus for the world?  Worth a thought...

AnAnonymous's picture

The US taxpayer is a free rider who relies on externalities produced in the colonies under the dominion of the USD.

 

US citizens in general do not have to trade anything as their government give them access to the wealth of the world (minus the US) by emitting pixel dust. The massive effort to maintain the world afloat is not done at the expense of the US citizens but at their whole benefit.

The US citizens commit nothing. Other countries, especially commodities rich countries are the ones stuffing their coffers with USD (emitted as pixel dust) and yielding true wealth against.

I know the victimology is high in the US but still, on this point, ludicrous to  try to sell the US citizens as those who are taking the wrong side of the deal.

People taking the wrong side of the deal are non US people who are forced to use USD and yield resources, goods against the USD.

The US taxation is unneeded. Kept only to maintain the illusion that the US basis has a grip on the US elite, that the basis is needed, you know, stuff like becoming a productive member of society, a mantra repeated by US citizens.

There is already panick aboard with US citizens realizing bit by bit that harsh reality, that any day, their elite can substitute them for better from elsewhere, removal of taxation would cause despair.

SoNH80's picture

I can only wish that the 50% of my income I pay in U.S. taxes were "pixie dust", or "pixel dust" as you put it, but that is not the case.

AnAnonymous's picture

Ah, but they are. The monetary expansion carried out by the US is performed on the back on non US citizens and their wealth. They are adding digits on a computer, knowing the new digits will buy oil from Saudis, gold from Ghana and the rest.

malikai's picture

Looking at the oil, food, and metal trades, I see a problem with the assertion that it is only non-americans paying the inflationary price. Those digits directly impact the price of everything, everywhere, and consequently the amount of labor required to acquire any derivatives from oil, food, or metal. They may be just numbers to Benocide, but they are not numbers to the serfs or statutory dependents.

AnAnonymous's picture

Dont put US citizens in the same league as the rest of the world. US citizens are exceptional. And for once, it is true, they are the only ones to benefit from the USD as a monopoly currency. No one elsewhere is allowed to emit currency known as USD through bits farting.

 

Dont sit people who can emit currency to buy stuff and people who cant on the same bench when dealing with the inflation issue. Some have to sell something to get USD, US citizens, well, it is just a few bits stored on a HD.

malikai's picture

That's great while the game lasts. But when the music stops, US citizens will pay.

All I know is that the USD is on the fast track to being history's shortest lived monetary empire. Once that happens, the tables will probably turn very fast.

It's comical too. All that money the US spends on war and it cannot do a damn thing against the real threats it faces. Paralyzed society at its best. C'est la vie!

AnAnonymous's picture

US citizens will pay with what?

Havent people not yet realized that the US plans to default on their debt by consume everything that can be consumed?

What  is a debt worth in an environment nothing is left to consume?

101 years and counting's picture

whats hilarious is, most everyone here says the economy is in shambles, yet believes in the "record" demand for oil.

cant have it both ways.

 

SheepDog-One's picture

Who says consumption needs to remain high for oil to go up? Soon people will likely be unable to buy gas at any price. We're way past the stage of economic textbook formulas.

Caviar Emptor's picture

Not exactly, bro....there's a rise in oil demand just like there's a rising demand for air and water simply as a function of rising populations with rising needs. Rising demand can poison an economy in situations of supply constraint just as fast as rising supply can. As usual, economics oversimplifies the real world

SheepDog-One's picture

OK but who says present consumption HAS to remain steady or increase? Who really needs to drive when unemployment is at all time highs? 

Caviar Emptor's picture

On the global level, aggregate demand pull just keeps tugging higher. It's one of the underpinnings of biflation and something that US-centric economists never consider: in the developing and emerging world they're building more roads, more airports, and moving goods around over long distances. There's rising demand for products that require petroleum inputs at every level: agriculture, synthetics, and of course power.

SoNH80's picture

Exactly.  Many formerly destitute nations are enjoying a better standard of living these days.  Third-world wars winding down, peasants able to scratch a decent living from the earth for the first time since before WW2 in many instances.  That means more petroleum use on a aggregate, global level.  Think of 3,000,000,000 peasants in Africa and Asia switching from twigs and cow dung to kerosene for cooking and lighting....

SheepDog-One's picture

Wars are winding down? I only see escalation. Where do you see all the wars winding down?

SoNH80's picture

Africa and Latin America.  Remember the Angola war?  The Guatemala/El Salvador/Nicaragua war?  The Congo war?  The East Timor war? They've all ended.  Even the Sudanese war has ended.  Things are heating up in the Middle East, but in many ultra-poor nations, things have gotten a bit more peaceful.  People are slowly rebuilding their lives.  The world is bigger than the U.S., Europe, and the ME-NA trainwreck.

AnAnonymous's picture

War theatres are simply moved.

But big, big mistake though: wars are extremelly greedy on resources, wars consume much resources. A high activity in war does not mean lesser consumption.

Actually, wars (and these wars) are ended through exhaustion. It might one cause behind those wars stopping.

IslandMan's picture

Sheepdog-One,

What don't you and 330 million Americans not understand about the fact that oil demand and price is not simply a US issue ?  - the rest of the world can use oil more effectively than you can, and so is outbidding you.  Asia and LAmerica does not have 20% unemployment.  Wake up !

SheepDog-One's picture

'I dont understand'...yea sure keep telling yourself that. What YOU dont understand is its all about to change big time, doesnt matter where you are the final stages of the 1 world govt are in place. You have no clue.

Mae Kadoodie's picture

No worries, House of Saud can print barrels of oil to infinity.

Sudden Debt's picture

If I wheren't that lazy I would do the sum of all oil imports of the 100 biggest countries and compair it to the export of the OPEC countries.

If the article is true, the number should be pretty surprising to say the least.

 

 

Money Squid's picture

People try but they can never get a propper accounting of what is being produced and exported. Oil producers do favors by giving oil or selling oil on the cheap in secret deals to neighbors and to other countries/companies for favors. When the US took control of Iraq the meetering systems used to measure oil pumped into the tankers were not working properly. And for some reason, they were not able to be repaired for years. Yet, the oil kept flowing. The American military men who ran the offshore tanker loading facility were simply pprovided a list of tankers that were due and told to filler'up. So, how much oil was shipped and to whom? We will never know.

lizzy36's picture


Here is the thing....There is no shortage of oil. There is a shortage of light sweet Libya type crude.

Nobody wants Arab heavy. Saudi has been offering it to end users. They aren't taking it.

From Reuters:

FEW TAKERS OF EXTRA OIL


"There is too much Arab Heavy," said a trader with a refiner

that buys Saudi crude in northeast Asia. "Even before

the OPEC meeting, I have been hearing that they had been

offering more barrels to some end-users."

Confirmation that additional Saudi supplies are on the way

came on Friday, when industry sources said it had offered

extra crude of all grades to Asian refiners in July.

A few refiners were interested in buying more, and India's

MRPL has bought a small cargo of about 600,000 barrels

of extra Saudi oil for July from Aramco, two sources with

knowledge of the matter said on Friday. But most refiners

had already covered their needs and declined the Saudi

offer.

"The question when they talk to customers is that there is

no shortage of oil in the market, and even if they tell them

more is available, the additional volume they may take is

small," said an industry source familiar with Saudi oil policy.

Sudden Debt's picture

Over 90% of india's car run on LPG.

In Brasil they drive on alcohol.

 

And still America is scared of running out of oil...

With LPG you can fill up your car and run for 400 miles for 10$.

Oil is and will remain for a while a big scam.

From the crap and farts Washington produces alone, half of the world population could be driving a hummer and have enough spare to light up the stove.

 

Methane is one of the biggest problems in the world for the environment. And still we hardly use it.

The problem isn't fuel. The real question is if there is enough air on the planet to burn it all.

 

Caviar Emptor's picture

Could they be lying? Don't be ridiculous! Autocratic pro-Western theocratic neo-colonial regimes with repressed impoverished populations and hostile neighbors don't lie! They have a reputation at cocktail parties to uphold. 

Caviar Emptor's picture

Leetle things that could be a beeg, beeg tell: the fact that we're even wondering IF Saudi can increase supply.....

ivana's picture

In one small country far far away somewhere btw east and west , on the edge of EU ... gasoline consumption declined 30% (!) since 2007.

So much about demand side. Bansters have scenario price targets and have to keep milestones. Rest is left to MSM puppeteers

Mallenet's picture

I saw a news item over the weekend (can't recall where, so it must have been a good weekend) re OPEC.  As I recall they set quotas that are then ignored at will by all. What is interesting now is that even this club of liars are splitting: Saudi is happy with low oil because it has loads, many others (most verbal being Mr Chavez) need high priced oil to maintain mis-managed economies.  Frankly, on purely selfish grounds, I hope the Saudi's get their way as oil at 35 could help me (and the rest of the 7 billion people who live because of the stuff).  The alternative - oil testing 200 - would mean getting a donkey for transport: which could really curtail my social life!

Stoploss's picture

He, He. The supply boost myth is about to be tested. Their field is dry, and has been for a long time. If anyone with half a radiated brain (couldn't help myself Tyler), were to realize what they have to do, and are doing to "boost production", would understand that those operations are nothing more than "scraping the inside of the pumpkin clean".

The fruit is long gone. 10mbopd? Please.

When this gets out, and it will, just hope you were lucky enough to have filled up the day before, because that's the last one you will get, that you can afford.

These price calls are assinine and non material. For those looking for a timeline, it doesn't exist. It will be however, the day, the shit truly hits the fan, thereby, vindicating the TSHTF club. Congrats to you guy's.

On a long enough time line, everyone is right.

HungrySeagull's picture

And on a long enough commute you burn your paycheck getting to a job that does not pay more than zero.