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