Saudi Arabia Raises Oil Output By 8% To Over 9 Million Barrels Per Day

Tyler Durden's picture

As we reported yesterday, Saudi Arabia which following its latest recreation of Helicopter Ben's money parachuting experiment to buy its people's love, suddenly has found itself in a fiscal crunch, has no choice but to increase general oil sales revenues. Which is why as Reuters reports the kingdom, which many speculate may be next to see a spike in protests in early March, has just hiked its oil output by 8% to over 9 million barrels per day. The move, in addition to yesterday's margin hikes by both the CME and ICE, has forced oil prices to decline modestly, bringing some stability to an otherwise extremely jittery market, which would also further exacerbate geopolitical tensions. "The Saudi move follows reassurances from Riyadh
earlier in the week that it was prepared to act to prevent shortages as a
result of the rebellion in Libya against leader Muammar Gaddafi that
has sharply reduced the fellow OPEC producer's 1.3 million bpd of
exports." What is unclear is how Iran, an OPEC member, will respond to this unilateral action out of an otherwise "collective" oil cartel. We continue to expect that as a result of a widening political schism between the OPEC member nations, and the ongoing turbulence in Libya, that OPEC will be soon "restructured" materially.

From Reuters:

Top exporter Saudi Arabia is the only country able to pump large amounts of extra oil at short notice. It sometimes steps in unilaterally to meet shortages or when it feels prices have risen to levels that may threaten economic growth or oil demand.

The Organization of the Petroleum Exporting Countries has resisted calls for a formal increase in output and says it does not plan to meet until June.

Iran's deputy Oil Minister Ahmad Ghalebani told the semi-official Mehr news agency he saw no need for an emergency OPEC meeting and that Iran would continue to comply with OPEC policy on quotas.

"There is no shortage of oil in the global crude market stemming from political turmoil in Libya and other North African countries that requires an increase of Iran's oil exports," Ghalebani told Mehr.

Italy's third-largest oil refiner, Saras, is looking to Russia, Iran and other Caspian countries to replace crude oil shipments from Libya, an executive said Friday.

The International Energy Agency, which represents consumer countries, has said between 500,000 bpd and 750,000 bpd of crude, less than 1 percent of global daily consumption, had been removed "at present" from the market.

One problem arising here is that Saudi oil is nowhere close to being a good replacement for Libyan crude, due to extensive differences in sulphur concentrations, and different target markets (diesel).

European oil companies have not taken up Saudi Arabia's offer of more supplies yet, industry sources have said, with some
saying Saudi crude would not be a suitable substitute for Libyan oil at
their refineries

This further confirms that Saudi's move is not one of plugging the capacity gap, but of merely boosting it own state revenues as a rebalance of OPEC relative output.

Then there are those who wonder just how much spare capacity Saudi Arabia truly has. As has been reported previously, WikiLeaks has recently disclosed information which puts Saudi's proven reserves in further doubt. But in a market in which an unconfirmed rumor has the power to move oil prices by 4-5 standard deviations, all that matters is simply the "myth" as Rosenberg noted previously, no matter if it is right or wrong.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
tmosley's picture

But, but, but dey CAN'T!

Internet Tough Guy's picture

Maybe they can, maybe they can't. Best case, we are pumping our ever-decreasing supply faster. Worst case, they are lying about the increase.

Why can't Texas (or Mexico, North Sea, Indonesia, etc. etc.) have magic oil wells like Saudi, where production and reserves increase over time?

Rusty Shorts's picture

Really, and why did God put most of our Oil over there?

66Sexy's picture

'Saudi Arabia Raises Oil Output By 8% To Over 9 Million Barrels Per Day'

nice headline ... but isn't that easier said than done?


ah, fuck it, it's been 5 minutes already.... it's already priced in.

Imminent Crucible's picture

Saudi Arabia pushed a button and instantly boosted production by 8%?

In 2008, when oil spike above $140, we were told they were running only a few percent below maximum capacity, and that nearly all of that was heavy sour oil.

Something smells bad here.

tmosley's picture

Well, Texas is still a net oil exporter.  Don't know much about the others.

Snidley Whipsnae's picture

A lot of oil wells in Texas, Ok, etc, pump full time and produce less than ten bbls per day...enough for a decent cash flow for some small oil companies, if they own many wells, but not a drop in the bucket compard to Saudi Arabia.

All oil resevoirs are not created equal.

Coast Watcher's picture

Depends on how much they have in above-ground storage. They've promised production increases before and then drawn down most of it from storage rather than wells. They should have some excess capacity, though, from earlier quota cutbacks. With SA, you can never tell, though. That's the problem. Matt Simmons tried to pierce the veil with Twilight in the Desert. Too bad he's not around for a sequel.

Milton Waddams's picture

US got a money printer, ME got an oil printer. So what EU gonna do about it?

Rusty Shorts's picture

You really think OPEC sells their Oil for paper confetti?


"Everyone knows where we have been. Let's see where we are going!

It was once said that "gold and oil can never flow in the same direction". If the current price of oil doesn't change soon we will no doubt run out of gold.

This line of thinking is very real in the world today but it is never discussed openly. You see oil flow is the key to gold flow. It is the movement of gold in the hidden background that has kept oil at these low prices. Not military might, not a strong US dollar, not political pressure, no it was real gold. In very large amounts. Oil is the only commodity in the world that was large enough forgold to hide in. Noone could make the South African / Asian connection when the question was asked, "how could LBMA do so many gold deals and not impact the price". That's because oil is being partially used to pay for gold! We are going to find out that the price of gold, in terms of real money ( oil ) has gone thru the roof over these last few years. People wondered how the physical gold market could be "cornered" when it's currency price wasn't rising and no shortages were showing up? The CBs (Central Bankers) were becoming the primary suppliers by replacing openly held gold with CB certificates. This action has helped keep gold flowing during a time that trading would have locked up.
(Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises.) Westerners should not be too upset with the CBs actions, they are buying you time!

So why has this played out this way? In the real world some people know that gold is real wealth no matter what currency price is put on it. Around the world it is traded in huge volumes that never show up on bank statements, govt. stats., or trading graph paper.
The Western governments needed to keep the price of gold down so it could flow where they needed it to flow. The key to free up gold was simple. The Western public will not hold an asset that going nowhere, at least in currency terms. ( if one can only see value in paper currency terms then one cannot see value at all ) The problem for the CBs was that the third world has kept the gold market "bought up" by working thru South Africa! To avoid a spiking oil price the CBs first freed up the publics gold thru the issuance of various types of "paper future gold". As that selling dried up they did the only thing they could, become primary suppliers! And here we are today. In the early 1990s oil went to $30++ for reasons we all know. What isn't known is that it's price didn't drop that much. You see the trading medium changed. Oil went from $30++ to $19 + X amount of gold! Today it costs $19 + XXX amount of gold! Yes, gold has gone up and oil has stayed the same in most eyes."




samsara's picture

Great stuff as always Rusty

falak pema's picture

You're son of Colbert and Jaques Rueff. In another age...the golden age of the golden fleece. Like Goldfinger...he was supposed to have a 9 hcp at golf. What about you?

sulfur's picture

how long will it take till the people from saudi arabia burn their oil fields down?

Mr Lennon Hendrix's picture

1,000,000 million protesters in Bahgdad?

lynnybee's picture

i am the learner here .   .... been listening to MIKE MALONEY giving a speech to RUSSIAN BANKERS about $10/barrel oil when it all collapses !    ZEROHEDGE guys are smarter than me, which is it ?   are we going to $200 or $10 ? 



Cognitive Dissonance's picture


Aren't roller coaster rides fun?

lynnybee's picture

we really are going to see $10 / barrel oil & $200/ barrel ??  how is that possible ?    (p.s. why would anyone junk me ?   you guys here are so smart & i'm just trying to learn. )

Oh regional Indian's picture

lot's of impatient folk around here lynny, is all.

Plus, too many viriables in your question actually, if you think about it.

COnsider what goes into the price of a barrel of oil. Try this site to understand how it is priced.

Then, look at Kitco's home page and that little 'Did Gold price go up because of predominant buying of fall in the dollar". That should give you some more hints as to price movements of soomethign denominated in fiat dollars.

Add that a "new" dollar might be around the corner. Different from the dollar you have right now.

also wanted to add that there is tremendous volatility everywhere and 27$ a barrel was just about 2 years ago... and $140 a barrel not long before that.

We literally are in anything is possible territory.

Hope I've con-fused you some more.



cougar_w's picture

How? Perhaps like this:

Oil goes to $200/bbl. People hate it, but they need it so they buy it. But that price harms the systems that depend on oil. Not enough to break them, but they weaken. The oil producers like the money and give everyone back home a bonus.

Oil goes to $300/bbl, because it can. Obviously, people are buying it. The systems that depend on oil start to pop but things keep moving. Slowly. However it's getting ugly. The oil producers are rolling in money, they are pulling money from every corner of the planet now, but they are becoming hated. Internally, the few ultra-rich are getting so rich it is insane (multi-trillionaires) and those in their lower tiers of society are becoming restless; they have money but nothing to buy with it, and nowhere to go, because the rest of the world is falling apart and they are hated besides.

Oil goes to $400/bbl. Nobody can buy it, and things fall apart wtihout it. The oil market overflows with crude that cannot be moved for lack of a buyer, for lack of a user at that price. Transportation sectors dry up. Agricultural goods stop moving, eventually stop growing on a large scale. Airlines are grounded and then gone forever. Businesses close, food riots everywhere. In the oil producing nations income fall off a cliff, oil production ceases entirely almost overnight. No transportation or manufacturing means money inside oil rich nations stays there. There is nothing being produced in the world, nothing is moving, and there is nothing to buy including food. You cannot eat gold or oil. Citizens in oil rich nations begin to starve, and then riot, and then they roll back 300 years of industrialization and Western influence. Camels come back into vogue

The oil refineries and production equipment that survived the riots and warfare deteriorate. Everyone is afraid of oil dependency, and finding ways to live without it becomes a national pasttime in Europe. The US closes it's borders and ports, returns to an agrarian life, and Americans quickly forget what little they ever knew about anything outside their home towns.

Oil has no market, no destination and no use. Oil tankers never again cross the seas. Oil drops to $10/bbl, mostly for heating, mostly in Maine.

Hope that helps.

Flakmeister's picture

One scenario...very plausible. It isn't my vote for the most probable outcome but it is definitely possible.

cougar_w's picture

Less a scenario, more a mechanism.

The question was how can it be both $200 and $10 assuming the larger issue of how price might be driven simply by demand. I doubt demand alone will drive it.

But yes as scenarios go it isn't too far out there.

Confuchius's picture

Anyone who would believe Saudi oil output figures would also believe the bernank's economic figures and osams - - err obuma's budget figures.

101 years and counting's picture

closer to $10 than $200.  everyone on this board admits the only thing propping up the world is the Fed.  WHEN this ends, equities collapse, and so will oil.



CrashisOptimistic's picture

You can be right, but equities won't be relevant.  Crushed demand will be.

mee-mee-mee's picture

i'm thinking the 200 dollars is more like 500.  Govenrments will subside for a while, reduce taxes on oil, etc but it will be a slippery slope, everthing costs more, GDP falls and oil falls with it.  We will be able to deal with a high Oil price for a while.....


It will be a good thing, we will reset, shift to a renewable / use when available system. The world will be a differant place, but a better one. Hopefully....

falak pema's picture

To 150 in coming months, maybe. Then in next two years downwards, maybe not to ten.Crystal ball at your service at no charge as no guaranty!

kaiserhoff's picture

OPEC is just an excuse for great parties in Vienna.  Too bad I'm not a member.

The Sauds are the smart rug heads.  They know that sooner or later,  Arab oil will be phased out in favor of Nat Gas, shale oil, or whatever.  It's in their interest to delay the inevitable.  I don't do predictions, but I think CDs wild swings have some merit.

snowball777's picture

Increasing production delays the inevitable?!

kaiserhoff's picture

Yes, $80 is more or less the point at which Canadian oil sands are really profitable, not just a jobs project.  More production in the US from offshore, fracting, etc. is mostly about politics, but also price. 

The Saudis need to keep the price/uncertainty quotient low enough that the normal laziness/incompetence of US political class is not over-ruled.  Only the filthy rich really think long term.  Sad, but true.

AnAnonymous's picture

So you are telling that an economic agent trading a finite resource considers as a potential threat another agent who would allow the former to stay longer in the game?

You are telling that SA needs to decrease the price of oil by increasing its extraction and such lasting less long in the game while SA could benefit from higher prices on a smaller extraction, allowing them to receive an oil rent for a longer time?

If so, I understand why the economic thought has such issue with finite resources...

kaiserhoff's picture

Not easy to parse that into English, but yes, you're getting there.  Lots of bright people for some odd reason, think oil is an exception to all other human experience.  It isn't.  Higher prices lead to more supply, whether the subject is hookers, tent preachers, whatever.  It's Econ 201.

The Saudi problem is three fold.

1 Substition effects - Oil is not the only source of heat/power/locomotion.

2 Other folks have sources of oil.  Oil shale, sands, deep oil, are essentially infinite in supply.  The issue is price.

3 It is well known that Arabs are a pain in the ass to deal with, especially when you add Israel into the mix.  We all need and want to get rid of that dependency, which simply reinforces 1 and 2.




AnAnonymous's picture

Higher prices lead to more supply, whether the subject is hookers, tent preachers, whatever.  It's Econ 201.


Lets move to the next course: how is it an issue for SA?

They are mostly mono economic activity.

They work on a finite resource.

Higher prices would allow them to extract less to get the same.

If supply overtakes demand, SA will naturally resist the decrease as they can extract for less (return to origin point)

What are you saying exactly? Because if there is something that can spur activity and economic growth, then it is additional supply in oil. More activity worldwide improving the chances of supporting a high price.

But for this to work, it must be additional supply, not substitution supply.

kaiserhoff's picture

Good point about extraction costs.  Saudi probably has the lowest in the world, rumored to be around $5/barrel, but who knows?  As long as someone, somewhere wants oil, lowest cost provides some leverage.

The House of Saud fears instability.  They are, after all, a medievel style Monarchy in the twenty-first century.  Absolute dictatorial rule isn't fairing too well in the Middle East these days.  Some readers may have noticed, but back to oil.

Gas fueled cars and trucks are a very old technology.  Think about a hundred year old cooling system.  High prices, but especially supply interruptions speed the day when oil will be viewed like charcoal, peat moss, or steam; quaint, useful in some settings, but mostly belonging to the past.

AnAnonymous's picture

If they fear instability, should they not manage their oil reserves in a lasting way? By increasing the extraction, they are moving faster toward the bottom of their reserves  thus speeding up the coming of instability.

Switching to a less 'economic' option does not cancel the more economic option.


Coal was not put aside because of high price. It was put aside because oil simply outcompetes coal in many ways. Just like coal outcompeted wood with little reference to prices.

tmosley's picture

Not all oil is pulled from the ground.  As prices rise, other types of oil, including those produced by algae or engineered bacteria from sunlight and brackish water, or that which is gotten from plastic recycling, will become popular, and eventually, at the right price, they will fill the void.  That price could be $120/bbl, or it could be $1200/bbl.  The take away is that prices can't go up forever until there is no oil, because oil CAN BE PRODUCED.

Once production starts, it will scale up.  With scale up comes lower prices.  Hence peak oil arguments are made moot.  This is why all Malthusian arguments fail.  They never account for human ingenuity.  

kaiserhoff's picture

Good point about scale.  Average costs often drop fast as new production comes online, and that's a problem for Saudi.  Let's take it up one more level.

If the Canadian oil sands average cost is $80.00 that influences decisions to open a new operation, but once in place, the decision model changes dramaticly.  If even half of those costs are fixed/sunk (I suspect it's well over that) a rational manager would continue operations as long as price is above $40.00 (Rev exceeds Marginal Cost).

Add in reduced shipping costs and reliability of supply and Arab oil is not that appealing.

AnAnonymous's picture

Saudi Arabia has been a very reliable supplier so far.


The most expected way an economic system is expected to endure high energy prices is that activity rises significantly. And it is pretty unlikely that other energy sources allow that high level of activity.

The remark on decision changes is favourable to Saudi oil: they will operate under the cost of extraction of tar sand oil fields.

Upping an economic option to the level of a less economic option does not remove the economic option from the table.

I  dont know where the idea comes from but it does not pass the test of daily reality: when an low cost option fades away, it does not make higher cost options economic.

If you used to buy cookies at $2, their disappearance does not make $6 cookies economic. If it was so, famine would not exist.

Flakmeister's picture

   Good thing you qualified that with $1200 (todays dollars) otherwise I'd call bullshit. And at $1200, we sure as hell won't be burning it.

If plastics come from oil, and you want to recycle that plastic into oil, by definition you can only recoup the fraction of oil used to make the plastic...

Scaling anything like algae to a level that will make any difference is a 30-50 year proposition. Moreover, it has yet to be demonstrated.

You neglect EROEI... a process is only viable if you get more energy out of a source than what you put in. At marginal EROEI, what you get instead of economies of scale, you get receding horizons. That is why the kerogen in the Green River is a pipe dream. Shills state that it will be profitable for oil at $X, and when we get to $X, it is then 1.2 x X. I recall these hucksters from the 80's.


tmosley's picture

Think of all the plastic that has been thrown away over the last 100 years.  That alone is probably enough to run the world for ten years.

The EROEI doesn't matter so much.  When you are talking about multiple hundreds of dollars for oil, you won't be burning it for the energy content, but for the energy density.  You will also be turning it into plastics.  Eventually, plastic will get too expensive, and everyone will switch back to metal, or to new composites, or other material types.  There are other sources of energy that become economical long before you reach $1200 in today's dollars.  Hell, I can get solar panels that will supply my home electricity use for $7500 bucks today, including the small scale grid tie inverter and wiring.  There are places where you can get solar panels for a $1/watt.  Scale up on the facilities is possible, and will drive prices lower.  Further, new technologies are coming online, or are near commercialization stage that will blow these old amorphous-Si panels out of the water in terms of both price, durability, and ease of manufacture (talking graphene here--no exotic inputs required, see my earlier posts on the subject).  This is one of numerous technologies that are available, and will make a LOT more sense at $150 bbl than they do today, including at massive scales.

The end of the oil age will be no more dramatic than the end of the coal age, or the end of the charcoal age, or the end of the whale blubber age.  As the price of consumable energy goes up, the price of permanent energy production facilities will come down.  In addition, more capital will flow towards making infrastructure that requires less energy input.  This may mean that people will be forced by economics to return to the cities, or that train service will become more pervasive, or something that no-one has ever heard of before will come along and make new ideas possible (pneumatic tube delivery services could supply the whole country for very little energy, for example).

AnAnonymous's picture

There are other sources of energy that become economical long before you reach $1200 in today's dollars.


Where does this line of thinking come from?

Economical, what does it mean?

$10,000 cars no longer being available does not make $100,000 cars more economical.

Checked in every day's life.

AnAnonymous's picture

The end of the oil age will be no more dramatic than the end of the coal age, or the end of the charcoal age, or the end of the whale blubber age.  


Depends on what dramatic means.

trav7777's picture

JFC you just don't get think everything revolves around some fictional dollar price?  And that somehow oil at some arbitrary dollar figure makes NEGATIVE EROI behaviors somehow economical?

Are you an idiot?  Perpetual motion devices do not become profitable even at $1M a copy, dude.  Solar panels don't create cretins CONTINUE to assume the sanctity of MONEY when MONEY sits atop energy.

And VOLUME does not directly cause an increase in MARGIN!  JFC, are you incapable of getting this?  As if because something returns 1%, if we simply do more of it, it will start returning 5%?

Flakmeister's picture

Ahhh... you make it sound so easy....

We are talking about liquid fuel, you know the kind that runs our entire infrastructure, not about running your aquarium pump off of a roof panel. Ok, that was a bit facetious, but not by much.

 Now you are a person of some means, yes? So you dropping $7500 on panels and $40,000 on an electric car is part of the equation. So in essence you are saying fuck the rest because I can take care of mine. Nothing wrong with that, just as long as we see eye to eye on that. Fine, you explain to all the schlubs out there that it is game over for them.

You also sadly misunderstand EROEI. The energy you invest into whatever infrastructure you build as part of the transition had better be invested wisely. Otherwise you shot your wad with nothing to show for it. There is a good reason why  I refer to corn to ethanol as the US version of the Easter Island logging industry. A related example is the Irons Works proposed as part of the Nazi's 4 year plan: the cost in steel etc... was such that the project would not be steel positive for 20 years after completion. It was shitcanned when they finally figured this out.

  Now don't lay any of that doomer shit on me. I am a realist, the free market will rely on oil because it is the most economic thing until it suddenly is not.

You show an inablility to comprehend that a civilization does not transform its primary energy source overnight: Wood to coal took 50 yrs, coal to oil took 50 years, all done in a time when energy supplies were rising. Any transition we undertake is at least 20 years and that is assuming a crash course Manhatten Project mentality, otherwise it is 50. Go ahead and discount the Trillions that represent the investment in the oil infrastructure, it is not a pretty sight going forward.

BTW, more plastic has been thrown away in the past 5 years than the 70 prior. Thermal depolymerization is extremely low EROEI and is likely to only ever be a niche. Just like running your car off of used deep fryer fat.

r101958's picture

Read up on EROEI. Doesn't fit very well in the world you depict.

trav7777's picture

Higher prices lead to more supply, whether the subject is hookers, tent preachers, whatever.  It's Econ 201.

Yep...which is why no nation has ever hit an oil peak.

the real problem is that economics is junk based upon flawed premises.

Supply is not infinite even if reserves are.  Please refrain from speaking on this topic if you do not understand fundamental concepts.

snowball777's picture

If its $200/bbl, you won't be able to afford it.

If its $10/bbl, you still won't be able to afford it (UE at 35%, 401ks cratered, the whole doom'n'gloom SHTF parade).

tmosley's picture

There is a diversity of opinion on that subject here.

My own opinion is that oil will continue to rise in fits and starts, but due solely to speculation and money printing.  As such, the rise will continue to be slower than that of ag commodities among others (like silver and probably gold).

An above poster was right that you probably won't be able to afford it, and that is all that really matters.  It's just that the blame lies on Bernanke, not the "oil gods" as the peak oilers would have you beleive.

trav7777's picture

Who gives a shit about your opinion?  You've proven time and time again to be a moron with magical thinking on this topic.  You make so many elementary errors that you should be embarrassed.

So fucking what about all these effing opinions? The vast majority of them are WRONG and aren't worth the bits they occupy on some hard drive somewhere.

As oil becomes increasingly scarce, its price will necessarily rise.  This WILL NOT MAKE EROI negative behaviors suddenly economical.  As oil becomes scarcer, it will NOT make the EROI of solar or ANY OTHER SOURCE OF POWER increase.

Your brand of ignorance is dangerous, because you lead idiots astray with your pollyana cheerleading.