Saudi Arabia Calms Oil Market, Happy To Add Oman's 850,000 Bbls/Day Output To Its Own Extra Production

Tyler Durden's picture

Saudi Arabia continues being on an excess capacity roll. After totally butchering the concepts of apples and oranges, specifically as pertains to light sweet and heavy sour, with the market apparently stupid enough not to know the difference, and somehow promising it can make up for lost Libyan output last week when in reality it is in desperate need to export more oil to balance its budget, the increasingly troubled country now is seen as the natural backstop to Oman disruptions. Reuters reports: "Oil prices turned lower on Monday as reassurances from Saudi Arabia that extra supply needs had been met soothed market fears over the spread of protests to oil-producer Oman. Violent uprisings in OPEC member Libya dramatically reduced exports from North Africa, but Saudi Aramco CEO Khalid al-Falih told reporters on Monday the shortfall had been made up. Falih refused to give exact figures, but an industry source on Friday said the top exporter's output had risen to more than 9 million barrels per day (bpd). This compared with roughly 8.3 million bpd in January, according to a Reuters survey." Of course, whether or not there is any actual hike in production in a country long rumored to be vastly exaggerating its spare capacity, we will only know months from now. In the meantime, Saudi will gladly take the few days of stability sub-$100 WTI grants the world, while it decides how to handle increasingly more beligerent neighbors Yemen, Oman and Bahrain.

From Reuters:

"Saudi Arabia saying they are replacing more or less what has been lost from Libya is calming the market this morning," said Cristin Tuxen, senior commodities analyst at Danske Bank, who warned prices could easily rally again if the situation in the Middle East deteriorated.

"We saw how nervous the market was when we saw the spike last week to $120 a barrel (for Brent). It really highlights that the risk premia related to geo-politics in the region is changing hour by hour."

 Prices for both benchmarks had earlier jumped a dollar higher on the day as Oman became the latest producer to feel the impact of the regional unrest, although its oil flow has not been affected.

Omani oil is equivalent to about 1 percent of global oil consumption, and any disruption could be expected to have an impact on oil prices.

Protesters blocked roads into the industrial area of Oman's refined product export port Sohar on Monday. Product shipments continued unhindered, a port spokeswoman said.

Oman produces around 850,000 barrels per day (bpd) and its crude forms part of benchmark used to price more than 10 million bpd of crude shipped from the Middle East to Asia.

The uprising in Libya has shut in as much as three-quarters of its output of 1.6 million bpd, according to some estimates.

Iran's oil minister urged Saudi Arabia on Sunday to refrain from taking a hasty decision on increasing its oil production after the popular uprising in Libya, the official IRNA news agency reported.

Iran is also selling more crude to refiners looking for alternatives to Libyan supplies.

One thing is sure: should protests spread to Russia and Canada, Saudi Arabia will be more than happy to pick up the slack from that production cut off as well. And should cocoa output from Ivory Coast be halted permamently, Saudi may soon consider replacing that lost output too.

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EscapeKey's picture

Yeah, but how?

The contango on USO is an outright rip-off.

equity_momo's picture

Buy the derivative of oil , ie , food. If oil gets more expensive , so does our food.

Fertilizers : POT , MOS or an agri ETF like DBA

Cotton has also been on a tear due to higher oil.


I know i know , its paper.  Apart from precious metals though the only way to truly hedge this clusterfk of an economy is to buy land or real estate with no leverage.   Not for the little people.

LongSoupLine's picture

Go long food stamp futures.  The ultimate oil derivative.

snowball777's picture

WHEN oil gets more expensive, everything gets more expensive.

Between PPI and Transpo, there won't be any more profit, but do continue pitching your "blood from stones" biz plan.


Flakmeister's picture

 I don't day trade my investment horizon is different. PBT is the probably the best pure play, but it can make your taxes complex if you trade it often.

Sudden Debt's picture

actually, almost every oil producing country will need to boost production because they'll need the cash to keep the masses under control.

I think we'll start to see a total collapse in price in the next 4 weeks.


ciscokid's picture

Lots of countries will gladly by oil

at any price to rid themselves of USD.

alter ego's picture

My friend,.

High oil prices are here to stay.

Saudis cant put more oil in the market, they

know it and most people with a little knowledge

on the subject knows that.


Bicycle Repairman's picture

High oil prices in dollars are here to stay, because the dollar is worth less every day.

Bicycle Repairman's picture

Where are they getting this oil from?  Surely the Saudis know they are running out?

overmedicatedundersexed's picture

light sweet crude is what refineries like..try selling the Saudi heavy oil and there is just not many refineries set up to process it quickly.

sour crude cost less/bl for that reason.

New_Meat's picture

Jubail refineries and up the coast to Oz.  Out come da gas-->refined product to EU and US. - Ned

firstdivision's picture

So that explains the gap up on the futures.

Lone Mad Minute Medic's picture

Drill baby drill! Sarah Palin says there lots of oil in Alaska.

gookempucky's picture

Nobody wants the Saudi salt water blend sludge. As always they are hoping the propaganda works again.

Riyadh/London, 24 February (Argus) — Saudi Arabia has contacted European oil companies to ask them about quantities and qualities of crude that they will need to compensate for the loss of Libyan supplies, a senior Saudi official told Argus today.

“Saudi Arabia has expressed its willingness to meet the requests of those companies, but it wants to know the quantities and qualities of crude required,” he said. “We will do everything possible to meet the needs of the European companies, but they need to tell us how much they need and what kind of crude,” he added= guess what ???????????????

Saudi Aramco in London told Argus today that it has been in contact with European companies Total, Eni, and Mediterranean refiners Hellenic, and Motoroil to provide reassurance that Aramco is ready to provide extra crude and to enquire about the companies' needs. None of the European companies have requested extra oil yet, added Aramco.

It is unclear whether those refiners in the Mediterranean and Asia-Pacific markets offered Saudi crude as an alterative — rather than west African — would take it, as it is more sour and heavy than Libyan crude.

financeguru500's picture


You are correct

Saudi Oil reserves are so easy to lie about because they just pump more salt water in to replace the oil lol.

Bicycle Repairman's picture

Peak oil isn't the problem here.  Period.

alter ego's picture

Hey repairman.


What is the problem here?

Currency debasing or energy output?

It's all around the same, you can't print more

money than energy you have to back it up.

Start to repair your bicycle because you will

have to start to use it real soon.





Bicycle Repairman's picture

World's oil supply has been peaking every year for the past 40.  And the sky is falling as well.

DaveyJones's picture

Are you on your petro period again?

alter ego's picture

Hey my troll friend.

That looks like a great argument of what I just


Everyone is going to suffer of that "petro

period" especially those who are in denial.

But, thinking more crealy I believe I should

change the term, from " Petro Period" to "Petro


What we are just about to suffer is a "Petro

Menopause": No more oil down pipes.


Sutton's picture

The Bernanke Put

The Saudi Call

Oh regional Indian's picture

You can't print oil. You can't print food. You can't print anything but promises.

There was an awesome cartoon I read years ago which was titled, Rush Limbaugh eats the World or Eats Everything). Very very telling.

I smell Ed Bernays in all this jawboning.


falak pema's picture

There are some secret protocols that the world is not aware of and that have been negotiated since the last year :

In a high level meeting between Saudi potentates and the Tea Party conclave of uber alles neo-cons, it was agreed that Sarah Palin would visit Saudi territory in the weeks following their meeting. This was fueled by two major considerations : Her "drill baby drill" campaign inciting US oil barons to pump in her native Alaska scared the shits out of the Arab Nabobs. Additionally, they were aware at that time of the imminent Wikileaks about their own Peak oil. In the face of the imminent double whammy the Saudis implored SP to visit the Saudi soil and bless Saudi oil wells with her 'hockey mom' song. She gracefully complied, against due payment of a sum in pure gold to her personal coffers, whose amount is a state secret only known in Fort Knox where her physical treasure lies hidden.

As a result of Saint SP's visit, the Saudi government is proud to announce that all extra production in Saudi wells to replace falling Libyan output, will be in form of SWEET hi-grade oil, alike the Libyan quality! Thanks to the lord, SP flies/rides again, like her childhood hero Destry, alias Ronald Reagan!!

dick cheneys ghost's picture

China: no limit on nukes....................

falak pema's picture

Whom the Gods wish to destroy they first drive mad. If Oil is Sauron's ring on the finger of USA, the nuke mirage will be the same on China's fattening finger. Sticky fingers in perspective! On both sides of the G2 divide...

snowball777's picture

Keep it up Khalid and Abdullah....soon you'll have to pump that shit yourself.

steve from virginia's picture

The world dances closer to the precipice. Yea, oil prices will go down along with the rest of the waste- based economies.

Modernity's bill collector can be seen at the end of the road, like the fifth horseman of the you-know-what.

Meanwhile, Saudia's ponzi scheme is added to all the other ponzi schemes. Try something over and over and over and one day it will come up with a different outcome, right?



alter ego's picture

Oil prices are not going down even though the

economy goes down the drain.

First: Bernanke will mantain the printing press to full throtle even if US hits hyper inflation.

Second: Worldwide industrilized agriculuture

has been built upon fossil fuels. (pesticides and

fertilizers are made from this)

Third: The world has reached the 7Billion

people milestones, these people including you

and me needs food, therefore energy prices will

continue to sky rocket.


There can't be more money than energy you have to back it up.



Flakmeister's picture

 Oil could always spike down, witness 2008-2009. I agree that it will not stay cheap short of total economic collapse.

Buy the the risk of overstating the case, compare the yield on PBT with the 10 yr. Part of any reasonably diversified investment portfolio should be the cash flow from an oil field....

falak pema's picture

I say, gas the baby-boomer generation and clear up some space. Only trouble, I'm one of them. If we all jump into the deep blue sea in one fell sweep I'll volunteer to do so. On that day so appropriately named april fool's day, April 1, 2012, lets make Nostradamus's prediction half true. All baby-boomers jump off or report for gasification duty.  

Mr Lennon Hendrix's picture
Tyler said it all, but from another source, Libya, oil production, OPEC responses, Saudi Arabian capabilities and the SPR:

CrashisOptimistic's picture

It's always been easier to promise oil production increase than to do it.  

Have a look at Iraq's recent projections of 13 million barrels per day by 2013.

They presently do about 2.3 mbpd.

the rookie cynic's picture

Oil price can definitely go down, even priced in dollars. The overall trend and fundamentals are up of course, but if price gets up to $150 again (or maybe $200 if you factor in QE2,3...) and we have a repeat of "08, price could get down around $50-60 again. As long as the Middle East is on fire, so will oil prices. Of course we brain dead Americans continually waste this incredible resource to drive back and forth to Walmart to buy a bunch of crap we don't need, instead of using it to build a 21st Century, sustainable, environmentally friendly infrastructure. Sad, really.

Flakmeister's picture

  This is the gist.... basically we have ~1 trillion barrels of goo to play with, and if we don't leverage that into something better and "sustainable", we will have shot our wad and have nothing to show for it.

Buck Johnson's picture

Saudi Arabia is going to get hit with these revolutions and they are horribly afraid of it, especially since 90% of the oil production comes from the Shia dominated East.