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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.


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Fri, 02/25/2011 - 11:29 | 996886 tmosley
tmosley's picture

But, but, but dey CAN'T!

Fri, 02/25/2011 - 11:44 | 996938 Internet Tough Guy
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?

Fri, 02/25/2011 - 11:47 | 996944 Rusty Shorts
Rusty Shorts's picture

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

Fri, 02/25/2011 - 12:06 | 996979 66Sexy
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.

Fri, 02/25/2011 - 13:43 | 997332 Imminent Crucible
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.

Fri, 02/25/2011 - 11:55 | 996968 tmosley
tmosley's picture

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

Fri, 02/25/2011 - 12:07 | 996989 Snidley Whipsnae
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.

Fri, 02/25/2011 - 12:20 | 997030 Coast Watcher
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.

Fri, 02/25/2011 - 11:31 | 996892 Cognitive Dissonance
Cognitive Dissonance's picture

Food fight.

Fri, 02/25/2011 - 11:33 | 996899 Milton Waddams
Milton Waddams's picture

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

Fri, 02/25/2011 - 11:41 | 996929 falak pema
falak pema's picture

Buy ME oil, sell toilet US $

Fri, 02/25/2011 - 12:02 | 996982 Rusty Shorts
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."




Fri, 02/25/2011 - 14:51 | 997504 samsara
samsara's picture

Great stuff as always Rusty

Fri, 02/25/2011 - 15:57 | 997682 falak pema
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?

Fri, 02/25/2011 - 11:35 | 996901 sulfur
sulfur's picture

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

Fri, 02/25/2011 - 13:06 | 997203 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

1,000,000 million protesters in Bahgdad?

Fri, 02/25/2011 - 11:34 | 996902 lynnybee
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 ? 



Fri, 02/25/2011 - 11:41 | 996926 Cognitive Dissonance
Cognitive Dissonance's picture


Aren't roller coaster rides fun?

Fri, 02/25/2011 - 11:54 | 996963 lynnybee
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. )

Fri, 02/25/2011 - 12:39 | 996994 Oh regional Indian
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.



Fri, 02/25/2011 - 13:29 | 997272 cougar_w
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.

Fri, 02/25/2011 - 13:55 | 997353 Flakmeister
Flakmeister's picture

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

Fri, 02/25/2011 - 14:00 | 997360 cougar_w
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.

Fri, 02/25/2011 - 12:07 | 996986 Confuchius
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.

Fri, 02/25/2011 - 11:41 | 996928 101 years and c...
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.



Fri, 02/25/2011 - 12:17 | 997022 CrashisOptimistic
CrashisOptimistic's picture

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

Sat, 02/26/2011 - 02:01 | 999195 mee-mee-mee
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....

Fri, 02/25/2011 - 11:43 | 996934 falak pema
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!

Fri, 02/25/2011 - 11:49 | 996949 kaiserhoff
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.

Fri, 02/25/2011 - 11:49 | 996955 snowball777
snowball777's picture

Increasing production delays the inevitable?!

Fri, 02/25/2011 - 12:08 | 996991 kaiserhoff
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.

Fri, 02/25/2011 - 12:27 | 997061 AnAnonymous
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...

Fri, 02/25/2011 - 12:53 | 997155 kaiserhoff
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.




Fri, 02/25/2011 - 13:04 | 997199 AnAnonymous
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.

Fri, 02/25/2011 - 13:25 | 997281 kaiserhoff
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.

Fri, 02/25/2011 - 13:33 | 997310 AnAnonymous
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.

Fri, 02/25/2011 - 14:05 | 997373 tmosley
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.  

Fri, 02/25/2011 - 15:47 | 997653 kaiserhoff
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.

Fri, 02/25/2011 - 15:58 | 997691 AnAnonymous
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.

Fri, 02/25/2011 - 16:26 | 997701 Flakmeister
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.


Fri, 02/25/2011 - 16:39 | 997829 tmosley
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).

Fri, 02/25/2011 - 17:15 | 997926 AnAnonymous
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.

Fri, 02/25/2011 - 17:23 | 997949 AnAnonymous
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.

Fri, 02/25/2011 - 18:56 | 998287 trav7777
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%?

Fri, 02/25/2011 - 19:07 | 998339 Flakmeister
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.

Fri, 02/25/2011 - 16:22 | 997771 r101958
r101958's picture

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

Fri, 02/25/2011 - 18:49 | 998260 trav7777
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.

Fri, 02/25/2011 - 11:48 | 996951 snowball777
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).

Fri, 02/25/2011 - 11:59 | 996973 tmosley
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.

Fri, 02/25/2011 - 18:59 | 998306 trav7777
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.

Fri, 02/25/2011 - 14:47 | 997492 samsara
samsara's picture


$200, Collapse,  Every thing full stop.  Nobody working, No money to do anything....

Half demand.


Fri, 02/25/2011 - 11:37 | 996903 Ragnarok
Ragnarok's picture


Fri, 02/25/2011 - 11:40 | 996919 gordengeko
gordengeko's picture

They split I think.  TWM also did a reverse today.  Maybe TWM did it because at 11/share to short the Russell 33,000, they might have run out of shares to sell by the time the thing  So increase the price 30+/share and the avg joe can't afford very much.  Conspiracy theory I know.

Fri, 02/25/2011 - 11:37 | 996913 lizzy36
lizzy36's picture

700,000 boe/d of heavy sour, ain't a replacement for 1.2 mboe/d of light sweet. They are not interchangeable.

But mazel tov to the Saudis. Proving a good crisis can always be capitalized on.


Fri, 02/25/2011 - 11:40 | 996921 Hondo
Hondo's picture

And how do we really confirm that they upped production 8%.......there is no way to tell except take their word for it..........I wouldn't do that.

Fri, 02/25/2011 - 11:40 | 996922 101 years and c...
101 years and counting's picture

" What is unclear is how Iran, an OPEC member, will respond to this unilateral action out of an otherwise "collective" oil cartel"

Gee, they'll probably pump more...and so will every other OPEC nation.  And then there will be no barges left on which to store oil as demand in the developed AND developing world crashes.  2008 all over again....except this time, we are starting at much higher inventory levels.

Fri, 02/25/2011 - 11:42 | 996930 trav7777
trav7777's picture

Heavy sour and there's no way to know whether they actually raised production or not.  KSA's production has appeared to have been overstated for many years.

Fri, 02/25/2011 - 11:51 | 996956 snowball777
snowball777's picture

Good for China who can refine that crap, not so much for Cushing, OK.

Fri, 02/25/2011 - 11:58 | 996967 CrashisOptimistic
CrashisOptimistic's picture


Exactly, trav.  This is an "industry source".  

Let's see if more oil arrives somewhere (though even production numbers are taken at country claimed face value by EIA and IEA).  

Exxon announced they were increasing Texas production back in the 1970s, and it didn't happen -- because they couldn't.  They announced it just the same.

This is also spot oil.  They can price it however they want.  It's all part of the process.  "We have recieved no orders for extra oil." they were saying yesterday.  Maybe because they quoted $200 to queries.  

Flakdood is claiming there will be no public market for oil within 5 yrs.  He has a good point.


Fri, 02/25/2011 - 19:03 | 998320 trav7777
trav7777's picture

Export Land Model is the hell close behind the Horseman of Peak.

Fri, 02/25/2011 - 12:23 | 997036 Snidley Whipsnae
Snidley Whipsnae's picture

No new refineries have been constructed in the US in how many years? 25 35? Why? Because no permits have been issued. It's NIMBY... not in my back yard.

We have low refining capacity for heavy crude because of NIMBY, environmental regs, and probably no funding for a new refinery that takes seven years to build.

Bankers don't want to fund a project that won't come on line for seven years when they can trade paper for a living and collect almost instantly.

Ditto for all manufacturing plants in US.

Just another example of how the US Fire sector is disconnected from the real US economy.

Fri, 02/25/2011 - 14:44 | 997482 samsara
samsara's picture

No new refineries have been constructed in the US in how many years? 25 35? Why? Because no permits have been issued. It's NIMBY... not in my back yard.

No, that's not the reason.  The oil companies planned it perfectly.  They built the amount that was needed to run their production.  They timed it perfectly to when No new refineries were needed. 

Why aren't they needed ?


Fri, 02/25/2011 - 14:47 | 997493 Flakmeister
Flakmeister's picture

Refining capacity has dramatically increased despite no green field projects over the past 30 years. It is always easier to bootstrap an existing facility and its attendant infrastructure than to build a new one from scratch.

 Sorry, your anti-green rhetoric doesn't fly...

Fri, 02/25/2011 - 14:59 | 997518 i.knoknot
i.knoknot's picture

your logic is sound, but the permits (drilling/refining/mining - oil, coal, nat-gas, etc.) are not forthcoming.

the EPA of the nineties+ is owned by consumers who don't understand where their 'stuff' comes from (it magically appears at safeway and wal-mart, 'nuf-sed.)

hell, CO2 is a pollutant to them - by law.

at this point i would gander most EPA leaders don't know what's in the air they exhale.

Fri, 02/25/2011 - 15:09 | 997541 Flakmeister
Flakmeister's picture

Colorado just issued an Uranium Milling permit...Check out EFR.TO

Things are not as black and white (green??) as they are made out to be. The only place that there could be *significant* oil that is not been pin-cushioned is off the California coast.  

Fri, 02/25/2011 - 11:42 | 996933 Miramanee
Miramanee's picture

This is a perfect example of why all of the doomer calls for imminent demise are flawed. TPTB DO possess an extraordinary arsenal of tools that they can deploy in order to keep things from getting wicked bad, wicked fast. From censorship to all manner of "creative" monetary policies to vicious crackdowns on dissent, those who run the show do so for a reason.

Fri, 02/25/2011 - 11:48 | 996948 Internet Tough Guy
Internet Tough Guy's picture

We're saved. lulz....

Fri, 02/25/2011 - 12:01 | 996976 Overflow-admin
Overflow-admin's picture

Yeah, we know the world can be saved in 15 minutes with Ben Bernanke's tools. Foolish.

Fri, 02/25/2011 - 12:08 | 997000 Idiot Savant
Idiot Savant's picture

Right, and what tool from this impressive arsenal will be deployed to squash foodstuff inflation and raise employment??

Attacking symptoms isn't the same as curing the ailment.

Fri, 02/25/2011 - 12:11 | 997005 takinthehighway
takinthehighway's picture

So says the future hungry refugee...

Fri, 02/25/2011 - 14:41 | 997474 samsara
samsara's picture

TPTB DO possess an extraordinary arsenal of tools that they can deploy in order to keep things from getting wicked bad,


They can't do jack shit about Peak Oil and they know it.  THAT's why all the theater.

Fri, 02/25/2011 - 11:44 | 996935 Oh regional Indian
Oh regional Indian's picture

So the tinder-box is double loaded with fissile material.

First is the long standing shia-sunni divide. 

Now the new generation, web inspired revolutionary fervor.

Add the fact that the House of Saud is not truly Muslim in any sense of the word nad might have been comitting sacrelige in Mecca for hundreds of years...


This 8% dribble drabble is bullwinkle.

Plus, you don't just open taps to get more crude. Long cycle extraction and supply chain.

Looks uglier than ever.


Fri, 02/25/2011 - 12:20 | 997028 CrashisOptimistic
CrashisOptimistic's picture

Stop pimping your blog on someone else's.

Fri, 02/25/2011 - 15:05 | 997531 i.knoknot
i.knoknot's picture

ORI has always contributed substantially here. i don't see it as pimping when it's relevant.

i was fortunate enough to find ZH via tyler's submissions to seeking alpha. never looked back.

'turd ferg' is another welcome 'pimp'.

i don't always agree with ORI, but he's far from spam.

then, of course, there was cetin... i wonder whatever happened to him/her...

Fri, 02/25/2011 - 15:10 | 997542 CrashisOptimistic
CrashisOptimistic's picture
Ya, so you think it would be okay if Target erected signage inside Walmarts?  Or vice versa?  Without paying rental?
Wed, 03/02/2011 - 06:39 | 1010556 i.knoknot
i.knoknot's picture

risk of life in the blog-o-sphere, i suppose. doesn't seem too abusive if *some* thought is put into the wrapper.

i often wonder what some of the media are thinking when they advertise obvious competition (youtube ads on NBC, etc.), even w/ rent...

i see ORI, WB7, etc. as compliments to ZH, whereas the cramer ads from double-click just crack me up.

Fri, 02/25/2011 - 18:58 | 998303 Rusty Shorts
Rusty Shorts's picture

Yeah, that's how William Banzia got here, by spaming his site until someone noticed.

Fri, 02/25/2011 - 11:48 | 996946 falak pema
falak pema's picture

BTW if the producer countries up their daily production, they're only cut their long term throats as their current potential is not increasing in terms of recoverable reserves of liquid oil. Keep this is mind. Swings n roundabouts.

Fri, 02/25/2011 - 11:48 | 996953 mukuch
mukuch's picture

Crude Easing -CE1?

Fri, 02/25/2011 - 11:52 | 996960 snowball777
snowball777's picture

Jiffy Lube.

Fri, 02/25/2011 - 11:53 | 996961 ziggy59
ziggy59's picture

if the saudis overestimated their reserves by 40% is their promise to increase output overestimated by 40% too?


Fri, 02/25/2011 - 13:09 | 997212 cougar_w
cougar_w's picture

The Saudis can produce exactly zero% extra crude and save the market, because their story about having infinitie reserves still holds water. They might do something, so I guess we can relax. What's on TV?

This is theater. The real game is on when actual production drops for any reason.

Fri, 02/25/2011 - 11:57 | 996970 lynnybee
lynnybee's picture

so, we're still going to see a deflationary collapse ?  & hyperinflation ?   what happens to silver & gold when we collapse ?   O.M.G. !   you guys sure this is coming ?    from what i've been reading (mostly ZEROHEDGE) , i thought we were just going straight into hyperinflation !    i learn more everyday.

Fri, 02/25/2011 - 12:06 | 996988 Overflow-admin
Overflow-admin's picture

Well, I'm not sure of the proportions of what is coming, but you can see the footprints of the 2008 crash and learn by yourself: Here is the Billion prices project of the MIT, tracking prices over internet.

When the next crash happens, monitor these charts and you'll see quickly as it's daily updated.

Fri, 02/25/2011 - 12:44 | 997130 pods
pods's picture

Well lynny, to me deflationary collapse is what is coming, hyperinflation would merely be the response.  Too much credit hanging out there.  The hyperinflation will be when we hit a full blown FRN crisis.


Fri, 02/25/2011 - 12:01 | 996977 OMG
OMG's picture

When not if we hit the wall we are going to get Default and then a one world currency and a one world government with zero rights as a human we will exist to support the global machine until we don't.

Fri, 02/25/2011 - 12:07 | 996990 karzai_luver
karzai_luver's picture

It's clear this is a fable , the peeps in other countries are starting to see the bullshit for what it is, a WTO,IMF rape job.


The fat sheeple in this country , up to now the beneficiary of the crimes, along with a few oligarchs and dictators around the world are the only ones still with the delusion of one worlders.


Fri, 02/25/2011 - 12:49 | 997145 pods
pods's picture

To quote Jules from Pulp Fiction:

"That seems to be the situation."


Fri, 02/25/2011 - 12:01 | 996978 karzai_luver
karzai_luver's picture

Some day the dumbass us sheeple will get off their green fetish and understand that producing all your OWN energy needs is the best way to survive.


If Obamao was the least bit interested in this we would have about 4-5 million peeps hired on to drill/build/etc. in this country.

Fri, 02/25/2011 - 14:37 | 997454 samsara
samsara's picture

ha ha ha.

The US is the most drilled area in the world.  About 500,000 wells have been drilled in this country(now averaging about a barrel per day).  That's why WE were the Saudi Arabia from the 30's till 1970(just as M.King Hubbert predicted in 1956).

Do you think they were drilling in 5000 feet of water and then 7000 feet after that in the GOM if you could get more barrels out of Spindletop?



and read for a month or so....

or just rent the movie...

Fri, 02/25/2011 - 18:18 | 998144 karzai_luver
karzai_luver's picture

Sorry sucka, Idon't need to see a movie ya know.


I got oil wells in my back yard and there's PLENTY more where that came from.


The cost to extract may be higher but the supply is certain and worth the cost.


Get out of your theater and see for yourself!



Fri, 02/25/2011 - 12:14 | 997011 tahoebumsmith
tahoebumsmith's picture

So now we all get a taste of the oil panic that can set in when a tiny little producer like Libya causes disruption to the chain. Just wait until our closest supporters like Iran,Russia and Venezuela decide to cause us some pain. This is when disruption turns to chaos in a nano second. If you don't think it will happen, think again. They are already selling their oil in currency other then petro-dollars setting the stage for an OPEC upheaval.

Fri, 02/25/2011 - 12:28 | 997063 Rodent Freikorps
Rodent Freikorps's picture

Wishful thinking is the new American creed.

"They wouldn't screw us, dude. We will just show them we care about them as human beings."

Fri, 02/25/2011 - 12:36 | 997096 falak pema
falak pema's picture

If the USA were less hegemonical, more politically neutral, it would just have to buy its oil at the market rate period. The only issue today is the growing concern of USD as reserve currency with the QE-forever madness going on. Nobody in his right mind will accept that. So apart from regime changes in the mid-east as the satrapies fall like skittles, the world will inevitably move to another form of reserve currency. What's the big deal in all these changes if you are a normal human being in your head (as elsewhere)?

Fri, 02/25/2011 - 15:14 | 997551 i.knoknot
i.knoknot's picture

fp - +++

i wish we (US) had the balls to describe these regimes (and our own) with the adjectives that truly describe them, and simply decide to either buy their products or not. This 'we love encouraging your pubescent democracy' crap just makes us the emperor with no clothes, and insults the wit of anyone choosing to look. i have little respect for any of their games.

how about "you're a bunch of savage thugs with oil we are interested in. how much for your oil?"

and no, i have no interest in 'fixing' them with some other form of (western) thuggery. let them beat themselves up with their own sticks, eh?

either way, i generally prefer the truth that hurts. my own little mental illness - but it's all mine.

Fri, 02/25/2011 - 12:16 | 997014 chistletoe
chistletoe's picture

Oil drilling and exploration require a tremendous body of knowledge and skills.  Ditto refining and transporting.  As the "low fruit has been picked", each new find requires more elaborate equipment and a wider variety of technical skills.


Worldwide society as a whole is wholely dependent on all the folks who do this work.  Without oil, the food producing systems of the world would immediately decrease by half and the transportation network grind almost to a ocmplete stop, and at least half of the world population would starve to death within months.


It would only require a loss of, say, 15% to 20% of the oil-related workforce, for the world to lose its ability to produce enough oil to keep everything together.  I, for one, do not have any real idfficulty in imagining scenarios where that might happen.  given the powder-keg we all are sitting on these days, about a million different ways of collapse, a million different "weak links" come to my mind immediately.


I think you all are missing the point when you debate oil at $10 vs oil at $200.   A generation from now, I can pretty much guarantee that those people who are still alive,  won't be buying oil at all.  They will be using donkeys, windmills, and the sweat of their own backs, to get stuff accomplished.

Fri, 02/25/2011 - 12:30 | 997077 Snidley Whipsnae
Snidley Whipsnae's picture


It takes about a cup of gas to move an gas frugal auto from sea level up a one mile high hill.

Think of the amount of people, and time, it would take to push that auto up the same hill.

Anyone that believes there exists today a replacement for crude/gas as an extremely cheap and portable supply of energy is not thinking clearly.

Fri, 02/25/2011 - 12:29 | 997060 falak pema
falak pema's picture

@Karzai luver :you should be campaigning for the reds. Singing 'Drill baby drill'. When the dip comes you will then have to ask yourself if your own investment in 'drill baby drill' has a return your investors can accept...if's 'plug baby plug'... and that's that. So its the return on investment on US home production investment and its capability to be at par with that elsewhere in the world... which is the key to making 'drill baby drill' either your swan song or your ole lang syne.

Fri, 02/25/2011 - 12:39 | 997109 Rodent Freikorps
Rodent Freikorps's picture

Or the average bovine American can get spooked and assent to simply blowing the shit out of other nations and just taking their wealth.

Rome taught many lessons.

They got an extra 700 years out of that policy.

Fri, 02/25/2011 - 15:44 | 997641 falak pema
falak pema's picture

I don't believe that today the US empire is like the roman empire in -145BC when they took out Carthage to reign supreme for 500 years. We're more like 200AD after Marcus Aurelius. Not the same situation. Blowing out others is technically possible but politically suicide.

Right now its the fall of the financial empire of New Rome...

Fri, 02/25/2011 - 17:27 | 997963 AnAnonymous
AnAnonymous's picture

Blowing out others is technically possible but politically suicide.


And perfectly useless.

Fri, 02/25/2011 - 18:24 | 998166 karzai_luver
karzai_luver's picture

maybe so,maybe not.


Been through plenty of dips before and maybe again.


One thing is certain though, we have resources and if we were going to blow money on all manner of god awfull war and nation building, then I CAN ASSURE you that money would be better wasted GIVING it to oil co startups or anyone with a shovel.


If you are going to talk infrastructure , then that's what you want to build.


Would you rather recap the banks with a few trillion?


Yeah, that  oughta work just fine.



Book that dip or no dip, baby.

Fri, 02/25/2011 - 12:31 | 997081 gwar5
gwar5's picture

I Heart the Saudis.

Fri, 02/25/2011 - 13:03 | 997195 cougar_w
cougar_w's picture

OPEC will be soon "restructured" materially.

Yeah, warfare can really mess you up.

Fri, 02/25/2011 - 13:25 | 997279 Saxxon
Saxxon's picture

Interesting that, rather than tanking on this piece of news, the commods are doing rather well today (no pun) including crude.

Fri, 02/25/2011 - 13:23 | 997263 serotonindumptruck
serotonindumptruck's picture

Will the Red Sea port of Yanbu have greater importance vis-a-vis supply logistics? I'm sure Ceylan (Turkey) is loading at full capacity.

Any supply logisticians here at ZH?

Fri, 02/25/2011 - 13:52 | 997329 Flakmeister
Flakmeister's picture

  The Saudis can supply extra oil to the market by draining their tank farm (~100 mm barrels). Back in 08, the farm was run down...

As has been pointed out, they do have ~1 mmbpd of heavy sour crude that is not fungible with Libyan supply.

As pointed out before, some of their claimed 12.5 mmbpd capacity is infrastructure on older fields, e.g. Abqiaq, that can never be run at full throttle.

Also, their "oil" supply is increasingly dominated by NGL. The intellectually lazy and dishonest lump C+C together with NGL. They are not the same.

In the past, there is evidence that fields were pushed beyond their safe operating levels for limited periods. These same fields were then choked back up to allow the pressure to return. I don't know how hard they want to push them this time.

The Saudi's will jawbone and do whatever they can to soothe the market. If Libyan or additional supplies are threatened on a prolonged basis, they will be powerless to do much about it.

Fri, 02/25/2011 - 14:26 | 997417 samsara
samsara's picture

Dead on Flak. Exactly.   We'll see how much their tank farm will hold us.

After that, It's stained water.

Fri, 02/25/2011 - 14:44 | 997486 serotonindumptruck
serotonindumptruck's picture

"After that, It's stained water."

Might be common knowledge these days, but apparently Ghawar has a 30 to 50 percent water-cut. The end is in sight.

Fri, 02/25/2011 - 14:53 | 997507 Flakmeister
Flakmeister's picture

Mid 30's for the water cut... not great but ok. Their GOSPs can't handle a water cut much higher than that. Problem is when one of their MRC's suddenly waters out. They have to quickly juggle things, shutting in wells, opening others. 

  Just to be clear, from the standpoint of oil reservoir management, the Saudi's are second to none. But, the spice must flow.... 

Fri, 02/25/2011 - 14:33 | 997442 serotonindumptruck
serotonindumptruck's picture

When you say the fields were "choked back up", is that a euphemism for seawater injection?

I've been trying to find some reliable data wrt production/depletion levels of the Ghawar Field. I'm wondering what this engineer's description of water injection wells for "pressure maintenance" means.

"The oil-water contact at Ghawar dips to the northeast, dipping more than 660 feet between the southwest end of Haradh and the Fazran area. The contact is consistently higher on the west flank of the field than on the east, and a tar mat is associated with the original contact. Water injection wells are completed above this tar mat for pressure maintenance."

Fri, 02/25/2011 - 14:59 | 997517 Flakmeister
Flakmeister's picture

  Choked back up means the flow rate was pulled back. The Saudis utilized secondary recovery techniques from the get-go. The idea is that by injecting water at the periphery of the oil field they can sweep the oil towards the well heads. They have one of the biggest super-computer complexes to help monitor and simulate the so-called oil-water boundary.

If you are interested, there are some incredible articles at the Oil Drum on this. I would start here

Staniford, Joules Burn are notable authors on SA. Happy Hunting.

Fri, 02/25/2011 - 15:03 | 997527 serotonindumptruck
serotonindumptruck's picture

Thanks, Flak! :-)

Fri, 02/25/2011 - 15:41 | 997633 Flakmeister
Flakmeister's picture

My pleasure....

A little anecdote, a few years back there was some really serious attempts at analyzing Ghawar at the Oildrum. Out of the blue pops up this guy that went by the monicker, "Fractional_Flow", it became very clear very quickly that this guy was a real pro, a reservoir engineer that may have worked or was working with Saudi Aramco. He made a couple of short, somewhat cryptic posts posting some equations of state and various curves. Anyway, it was exactly like a "Deepthroat" moment (no, not that one), in that instead of saying "Follow the money", it was about a key way to interpret the sparse data from Ghawar....

Lots of interesting people pop in at the Drum.... 

Fri, 02/25/2011 - 19:10 | 998351 trav7777
trav7777's picture

..ain't that the truth.

Fri, 02/25/2011 - 14:10 | 997385 ciscokid
ciscokid's picture

Dunno whats all the fuss about,
oil is bought in US dollars right?

Thats oil for paper,this is great business for the US.Print on Benny boy.

Fri, 02/25/2011 - 15:21 | 997580 i.knoknot
i.knoknot's picture

so, let me get this straight...

the saudi's are borrowing from their (limited) future production capacity, at an 8% increase, to pacify and bribe their increasingly agitated populace... (watch march 20th...)

what a novel concept. where else have i heard this story?

in unrelated news, the most recently released M2 measure of money supply has increased at its highest rate ever...

Fri, 02/25/2011 - 16:24 | 997782 r101958
r101958's picture

I'll believe it when I see it in the historical data.

Fri, 02/25/2011 - 20:46 | 998609 Rusty Shorts
Rusty Shorts's picture

eh, forgot what I was gonna say, nevermind.

Do NOT follow this link or you will be banned from the site!