The World Still Needs Saudi Arabia's Oil

Tyler Durden's picture




 

Submitted by Chris Dalby via OilPrice.com,

Economic analysts are torn as to how important Saudi Arabia will prove to the global economy in years ahead. In the first half of 2014, the US surpassed Saudi Arabia to become the world’s foremost oil producer. This sparked widespread predictions that the US would soon become an oil exporter, reducing its dependency on Riyadh and harming Saudi Arabia’s leading role in the Middle-East. However, the ISIS invasion of Iraq and Syria, the Boko Haram insurgency and continued oil theft in Nigeria, unrest in Venezuela and ongoing violence in Sudan and South Sudan have changed the deal.

The US extracted a record 11.2m bbl/d in April 2014, as compared to 9.69m bbl/d for Saudi Arabia in March 2014. But this increase in American oil is hardly enough to mitigate the devastating impact on oil prices that would be seen, should oil facilities in countries at war stop producing. ISIS alone has spooked oil markets with its gains. It has captured the al-Omar oil field in Syria (75,000 bbl/d) and five others, seized control of Baiji, Iraq’s largest refinery, for over a month, while trouble still brews not far from the Kirkuk oil field (260,000 bbl/d) and repair work has halted on the Kirkuk-Ceyhan pipeline (capable of transporting 300,000 bbl/d). The US may be boasting of energy independence thanks to its shale gas boom, but the situation in Iraq still threatens to deal an uppercut to global oil prices. Exxon and BP even began evacuating workers from Iraq in June as ISIS continued its advance. Spooked markets already saw the Brent crude price in June hit its highest level since September, although it has begun to lower again in July.

The US and Saudi Arabia have stood alongside one another as unlikely partners for decades, ignoring each other’s unsavory activities in the name of mutual prosperity and a shared loathing of Iran and Al Qaeda. The UN had the Oil-for-Food program, but Saudi Arabia pioneered the Oil-for-Safety tactic. However, this dependency on American foreign policy goodwill may have had deeper consequences than the House of Saud expected. The administration of US President Barack Obama took a dim view to Saudi Arabia’s interference in Bahrain during the Arab Spring, and Riyadh’s threat-laden rhetoric against Tehran seems to have abated under pressure.

The US shale boom also seems to have made a direct dent in Saudi Arabia’s production plans. Talk of adding 2.5m bbl/d to Saudi Arabia’s capacity has stopped as the US has scaled up its daily production ability.  Therefore, could the former oil king be counted upon to scale production up to 12.5m bbl/d, should at-risk OPEC members drop the ball. Seth Kleinman, Citigroup’s Head of Energy Research, doesn’t think so, writing that “the market has never seen Saudi Arabia hold production over 10 million barrels a day…a combination of skepticism and caution seems warranted.” Critics also point out that Saudi Arabia has made no new discoveries in years.

A silver lining came last week in the shape of a deal in Libya between the government and rebels to re-open eastern ports that handle half of the country’s oil exports. The agreement to re-open the ports of Es Sider and Ras Lanuf has already led to production restart at the Sharara oil field, with a capacity of 340,000 bbl/d. Active exports are expected in late July, once the Zawiya refinery also gets underway. Despite this good news, it is difficult to see this as anything more than a stop-gap.

US shale finds show no sign of abating but neither do crises in the Middle-East. The good news out of Libya may help to stabilize oil prices for now, but this may not hold true in the long-term. With ISIS now having announced the desire to one day attack Saudi Arabia and destroy the Kaaba, the old pact between the US and Saudi Arabia may gain a new lease of life. While the US maintains its unwilling burden to guarantee the security of its Middle-East allies, Saudi Arabia will remain in the familiar position of being the world’s most trusted source of oil.

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Fri, 07/11/2014 - 14:26 | 4947802 Hohum
Hohum's picture

Whoever said the USA would be a net oil exporter (compare petroleum PRODUCTS) cannot analyze data and marginal costs.

Fri, 07/11/2014 - 14:36 | 4947842 ZerOhead
ZerOhead's picture

< Grab the oil

< Let them keep sponsering terrorism

Saudi Arabia continues to sponsers terrorism (Al Qaeda, ISIS etc.etc.), provided 15 of 19 9/11 hijackers and abuses the rights of it's citizens worse than Obama/Cheney. Send the troops in and grab the oil.

Fri, 07/11/2014 - 14:39 | 4947858 pods
pods's picture

I had that thought, if we are an empire, just take the damn oil.

But, we are an empire run on debt exportation, so we have to pay for the oil.

How fucked up is it that if we actually stole the rest of the world's oil it would slit our own throat?

Only a banker can think up a scheme this diabolical.

pods

Fri, 07/11/2014 - 15:04 | 4947897 ZerOhead
ZerOhead's picture

Spent a trillion or more (plus the bodies) in Afghanistan for this soon to be built pipeline for either Exxon or Chevron to make a couple billion a year transporting Caspian Basin oil to foreign markets. Plus the US military still has to remain there forever at considerable expense just to protect that pipeline.

Privatize the profits and let the taxpayer pick up the tab for the expenses... just like the Wall Street bankers.

Talk about a lousy return on investment.

 

"Officials of Pakistan, India, Afghanistan and Turkmenistan are set to meet in Ashgabat next week to push ahead with a planned transnational gas pipeline connecting the four countries and reach a settlement on the award of the multi-billion-dollar project to US companies.

The Turkmenistan, Afghanistan, Pakistan and India (TAPI) gas pipeline would tackle energy shortages in Pakistan.

Two US firms – Chevron and ExxonMobil – are in the race to become consortium leaders, win the project and finance the laying of the pipeline,” according to a senior government official."

http://www.energyglobal.com/news/pipelines/articles/Finalising_the_TAPI_...

Fri, 07/11/2014 - 15:10 | 4947956 TheGardener
TheGardener's picture

"Send the troops in and grab the oil."

Probably has been the long term plan all along with all those destabilizing measures across the middle east.

Fri, 07/11/2014 - 15:44 | 4948061 cougar_w
cougar_w's picture

The British started it 100 or more years ago. This is a really old story, but it is about played out now.

Sat, 07/12/2014 - 01:19 | 4949372 teslaberry
teslaberry's picture

to me you are a moron. 

 

we have GRABBED THE OIL. we made deals in ww2 that the saudis sell oil in dollars and buy OUR military hardward and OUR consulting and expertise and OUR refining for 'their' oil. 

 

we have bases all over their country. 

 

what you are suggesting is that somehow if we committed a genocide in saudi arabia with our existing forces that we could move enough meximericans into the saudi penninsula to make it better for 'us'. 

 

this is wrong. the saudi culture is one that spends almost nothing on the vast majority of impoverish dessert people living in the country. they import slave labor and pay a very small group of princes and elite oil royalty allowances. 

 

this is the backwards ass slave culture of the saudi arabian kingdom--this makes it as cheap as possible for the united states to be in this part of the world and use the oil. furthemore---saudi arabia plays a 'supporting' role in internetional diplomacy and as a conduit for stealth weapons supply programs. 

 

that is a better advantage to the u.s. than would  be committing an unnecessary genocide. 

the biggest threat to the united states is a revolution in saudi arabia, like the one in iran. 

 

notice how the shia islam radicals are anti-western but somehow the sunni ones who claim to 'hate' the united states and bomb 'our' twin towers, seemingly haven't bombed anything in the u.s. in 13 years AND  they fight against iran and try to destroy a syrian regime that allows russia a port on their meditteranean shoreline. 

WE WANT THEM TO SPONSOR TERRORISM BECAUSE IT IS PART OF OUR STRATEGY WITH 'THEM' . 

if the saudi's disobey the united states its because of russia or china or maybe one day the 'e.u'. 

but they don't. and if there is a revolution in saudi arabia, the house of saud will commit its own genocide with the consulting help of the united states on its own people. 

 

really-----this is the dynamic. not your silly voting box of false nonsense choices.

Fri, 07/11/2014 - 14:41 | 4947862 post turtle saver
post turtle saver's picture

no one with any brains in the US is boasting of energy independence... and to answer the question, Saudi Arabia will continue to play a huge role in meeting the world's oil needs...

I swear some of these articles just come in lookin' for a fight... not falling for it

Fri, 07/11/2014 - 15:46 | 4948074 CrashisOptimistic
CrashisOptimistic's picture

Oil Price Dot Com

How can anyone be surprised at all the errors?

1) The US is not now producing more oil than Saudi Arabia.  Millions of barrels per day oilprice.com is counting is not oil.  It's NGLs.  No one has ever, ever, ever equated NGLs to oil, until now.  Why not count water, too?  Ethane does not become gasoline.  Propane does not become gasoline.  Only oil becomes gasoline, or diesel or kerosene. 

 

2) The US imports 7 million bpd of crude oil.  That look like independence?  The "petroleum products" export is refined goods.  Venezuela sends some crude they cannot refine to Houston.  Houston refines it and sends back gasoline.  This is recorded as a petroleum export.

 

3) The Libyan ports opening can drain the tanks on site and ship the product.  The oil from the fields is still not flowing because the rebels hold them and aren't giving them up.  So when the tanks are empty, it stops again.

 

4)  The number one oil producer in the world is Russia.  KSA is number 2.  The USA is number three.

Period.

 

Fri, 07/11/2014 - 16:51 | 4948305 Flakmeister
Flakmeister's picture

Yep....

If you can't get the basic facts straight, why trust their "analysis"....

Fri, 07/11/2014 - 14:46 | 4947877 cougar_w
cougar_w's picture

Propaganda, aimed at middle-America. Everyone wants to believe so nobody (well nobody with an audience) questions it.

SA is drilling like mad men. All it does is keep their fields from declining.

US shale is facing terminal decline. Drillers are facing bankruptcy. The Monterrey formation was downgraded to junk status, nothing much there after all.

They'll be making up shit now, to cover for all the lies they've had to tell to keep people from falling off the consumer treadmill, being the only engine left driving the debt-money economy of the world.

Wait until the unwind starts in earnest, it's going to feel like a asteroid hit.

Fri, 07/11/2014 - 14:55 | 4947910 pods
pods's picture

Either it will feel like an asteroid hit, or we will wish one did.

pods

Fri, 07/11/2014 - 14:56 | 4947912 Taint Boil
Taint Boil's picture

Ridiculous - stopped reading at OilPrice.com

Fri, 07/11/2014 - 15:26 | 4947993 cougar_w
cougar_w's picture

I have multiple sources behind my assessment of the situation and oilprice.com isn't even on the list.

Fri, 07/11/2014 - 15:32 | 4948012 samsara
samsara's picture

Ditto

Looks like Oilprice.com has replaced Cambridge Energy Research (aka Yergin's place) as lead propaganda machine.

Fri, 07/11/2014 - 17:26 | 4948399 Taint Boil
Taint Boil's picture

 

 

Of course that above comment was directed at OilPrice.com and not you …..I always agree with what you post.

Fri, 07/11/2014 - 15:19 | 4947977 daveO
daveO's picture

Shale boom is a classic malinvestment created by FED ZIRP. It actually hurts the banksters' bond sales to other exporters. Therefore, they must go around creating BS like Boko Harem(China signed an oil contract there last year), or whatever it is this week. Free market pricing, at this point, would bankrupt the FED, US Fed. gov., the Saudi's, Russia, banksters and shale oil drillers, all at the same time. Just to name a few.

Fri, 07/11/2014 - 15:50 | 4948085 Canadian Dirtlump
Canadian Dirtlump's picture

It is implossile to analyze the importance of saudi arabia since their actual reserves aren't known. Every person in the industry I know says they put more water in their wells than oil comes out and their reserves are a bad joke. If that is true then oil is way underpriced and their importance is way over stated.

 

Their prime importance is for the petro dollar ( recycling ) more than it is for petrol in my view. Their bronze age wahhabism ( originally used to snuff things like mystic sufism ) is the root of ALL radical Islam ( forget hezbollah ) and as a stand alone country if they weren't the key partner in the petro dollar they would have bombed them already.

Fri, 07/11/2014 - 14:29 | 4947809 DoChenRollingBearing
DoChenRollingBearing's picture

Saudi Arabia will be an important, indeed a vital, oil supplier for the foreseeable future.

US oil exports are likely to be a short-term phenomenom.  Those exports will likely will not last.  

Fri, 07/11/2014 - 14:42 | 4947864 SmackDaddy
SmackDaddy's picture

the oil yes, but who says we need the saudis

Fri, 07/11/2014 - 14:56 | 4947904 DoChenRollingBearing
DoChenRollingBearing's picture

(The world needs Saudi oil)

Fri, 07/11/2014 - 15:40 | 4948038 cougar_w
cougar_w's picture

But only until it doesn't.

If people wake up to the looming crisis and start making other arrangements for daily living, the oil story could end in a relative heart-beat with extractable reserves still in the ground, where they will remain until governments decide to use tax dollars to get at them no matter the cost.

Fri, 07/11/2014 - 14:42 | 4947866 post turtle saver
post turtle saver's picture

correct, any exports from the US are expected to taper off around ~2030 time frame... a blip...

Fri, 07/11/2014 - 14:49 | 4947888 Ham-bone
Ham-bone's picture

US imports 7.5 million barrels a day and exports 270 thousand barrels a day...to Canada...

http://www.eia.gov/todayinenergy/detail.cfm?id=16711&src=Petroleum-b3

Almost all of the crude oil exported from the United States has been delivered to Canada, and most of the recent increase in crude oil exports has been from the U.S. Gulf Coast (PADD 3). Gulf Coast crude exports averaged 134,000 b/d in the first quarter of 2014, a 283% increase over 2013's record high of 35,000 b/d. In the first quarter of 2014, nearly 75% of Gulf Coast exports have left the region from the Houston-Galveston district, in Texas. The remaining barrels were loaded in Port Arthur, Texas and New Orleans, Louisiana.

Exports from the East Coast (PADD 1) averaged 30,000 b/d in the first quarter of 2014, down slightly from 2013 levels, but up from 9,000 b/d in 2012. First-quarter exports from PADD 1 were evenly distributed between the Port of New York and Portland, Maine, which is the starting point of a pipeline that delivers crude to refineries in the Montreal area. Exports of crude from the Midwest (PADD 2) have long been a source of crude for refineries in Sarnia, Ontario.

Fri, 07/11/2014 - 15:19 | 4947969 Ham-bone
Ham-bone's picture

available net exportable oil (global) is shrinking - exporters using more of their own production, and importers want more.  This is the squeeze on oil and world growth for which there is no good answers...

http://raylong.co/blog/2014/2/12/revisiting-available-net-exports

At the 2005 to 2012 rate of decline... in only 17 years China and India alone would theoretically consume 100% of global net exports of oil — Jeffrey J. Brown

Fri, 07/11/2014 - 14:27 | 4947811 whatsinaname
whatsinaname's picture

Where is Bruce Krasting lately ? He had some rather low projections on WTI prices by this time around. Hope he did not bet on it although crude prices have been smartly contained. Have not seen him posting much lately either and his blog is silent.

Fri, 07/11/2014 - 14:28 | 4947818 Gringo Viejo
Gringo Viejo's picture

And the house of saud still needs protection from its people.

Fri, 07/11/2014 - 15:43 | 4948058 Reaper
Reaper's picture

The world may need Saudi oil, but the world can do without Saudi kings and their Wahhabi support.

Fri, 07/11/2014 - 14:35 | 4947833 earleflorida
earleflorida's picture

today, July 11, 2014 (fri) by the "Roving Eye" ... Pepe Escobar

http://atimes.com/atimes/Middle_East/MID-01-110714.html

"Watch the caliph rip"

Fri, 07/11/2014 - 14:38 | 4947853 pods
pods's picture

Dirtbag camel humpers can burn in hell.  Barbarians with a lavish lifestyle thanks to the USD.

Is Tom Hank's island still open?

pods

Fri, 07/11/2014 - 14:39 | 4947855 Joebloinvestor
Joebloinvestor's picture

SA could drop the price and put 1/3 of the competition out of business in a heartbeat.

Fri, 07/11/2014 - 14:48 | 4947885 cougar_w
cougar_w's picture

Do that and the US shale extraction market would implode completely, probably never to return.

It's either $100+ forever, or huge supply destruction over night.

Fri, 07/11/2014 - 14:53 | 4947906 Joebloinvestor
Joebloinvestor's picture

Let CHAOS reign.

Fri, 07/11/2014 - 15:21 | 4947980 samsara
samsara's picture

Cougar;

A couple quotes from Ilargi at AutomaticEarth;

“What is shocking is that upstream costs in the oil industry have risen threefold since 2000 but output is up just 14%,”

(ie Upstream costs are up 200%, output rose just 14%.)

A report by Carbon Tracker says companies are committing $1.1 trillion over the next decade to projects that require prices above $95 to break even

The Canadian tar sands mostly break even at $80-$100.

Some of the Arctic and deepwater projects need $120, Several need $150

"Martijn Rats, from Morgan Stanley, says the biggest European oil groups (BP, Shell, Total, Statoil and Eni) spent $161 billion on operations and dividends last year, but generated $121 billion in cash flow..."

Fossils, Fuels and Zombies

http://www.theautomaticearth.com/debt-rattle-jul-10-2014-fossils-fuels-and-zombies/

Fri, 07/11/2014 - 15:28 | 4948005 cougar_w
cougar_w's picture

To which someone will shortly reply: That's bullshit the US is a net exporter of crude.

Fri, 07/11/2014 - 15:26 | 4947997 samsara
samsara's picture

Bullshit.

SA pumps/sells 8-10 million barrels a day at $100.

If they sold it at $70 a barrel,  They would still only pump/sell 8-10 million a day.

8-10 barrels out of 80 (world production per day) selling for $70 won't do anything for the countries not already contracted for their oil.

Fri, 07/11/2014 - 14:59 | 4947894 Wipewithpaper
Wipewithpaper's picture

The USA still imports more oil from canada than it does from the middle east. So, is the USA going to export canadian oil ? They just might as they buy it at far less from canada than middle east oil costs.

Someone here must know the numbers, but I have heard the USA pays canada only 67.00 a barrel.

The USA imports 33.3% of all impoted oil from Canada  read this shocker  http://www.energytrendsinsider.com/2014/06/23/where-the-us-got-its-oil-f...

Fri, 07/11/2014 - 15:01 | 4947929 Zerozen
Zerozen's picture

The price is not quite that low, right now Canadian WCS is trading at Cushing, Oklahoma for around $92/bbl. It definitely trades at a discount to what comes out of the Middle East though because it's of an inferior quality (the heavy Canadian).

Fri, 07/11/2014 - 14:52 | 4947900 samsara
samsara's picture

US shale finds show no sign of abating...

What utter bullshit.

Try some reality.

Fossils, Fuels and Zombies

http://www.theautomaticearth.com/debt-rattle-jul-10-2014-fossils-fuels-and-zombies/

Sat, 07/12/2014 - 16:23 | 4950620 Radical Marijuana
Radical Marijuana's picture

That article concludes:

"... there are deeply entrenched economic and political power divisions and equally deeply vested interests that are not simply going to walk peacefully into the sunset and leave the world’s biggest fortune behind, just so we can do what we want. Reality is always dirtier, and in more than one way, than we like to think."

Indeed, samsara, it appears an abstractly good idea to "try some reality." However, the Reality we actually live within is based on the exponential growth of lies, backed by violence, dominating the political economy more and more for thousands of years, to the point where there is NO WAY for those established systems to "try some reality" without going through psychotic breakdowns, while severe social storms blow through.

The more important any issue becomes, the more deeply it gets buried under bullshit, so that forming a coherent opinion becomes progressively more difficult. As some comments above already pointed out, it appears to be impossible to discover the truth about Saudi oil "reserves." That is one of many ways that the manifold paradoxes of controlling civilization through systems of enforced frauds manifests:

THE MORE THEORETICALLY IMPORTANT SOMETHING GENERALLY IS, THE MORE PRACTICALLY IMPOSSIBLE IT BECOMES TO CONFIDENTLY DISCOVER MORE OF THE TRUTH ABOUT THAT ISSUE.

Fri, 07/11/2014 - 15:01 | 4947930 Kirk2NCC1701
Kirk2NCC1701's picture

US Oil Exports are a marketing & political FRAUD.

Fact is, that w/o oil from Canada and Mexico -- which gets refined in the US for export and domestic use -- there would be no "NORTH American energy independence".  If the US had to rely on its own resources, the Petrodollar and our lifestyles would come to a screeching halt.

Fri, 07/11/2014 - 15:01 | 4947931 besnook
besnook's picture

the real story on the usa(and canada) oil supply is the oil has been known to be there since forever but the saudis had honey oil just a few feet below the surface that could be extracted for pennies. now that the cheap to extract oil is gone the more expensive oil becomes economically rational, hence usa production, the pipeline project from canada to southern and midwestern refineries. huge projects mining dirty and stranded reserves are going on all over the world. and then there is gas.

as the price of petrol products rises other energy substitutes become viable......they better,lol.

Fri, 07/11/2014 - 15:35 | 4948021 cougar_w
cougar_w's picture

Rising price runs up against the ceiling of what the global economy can afford, which is not the same price the extraction companies need to make a profit.

The global economy wins in that tug-o-war; if there is no market at the price, the producers are forced to cut back or even cease operations. Drop in production leads to additional drop in demand as people are forced to accept different ways of doing things. This becomes a self-driving spiral that ends in crude oil becoming a much smaller player in the economic picture.

At some point, it is not a player at all. Oil companies either bk, break up into smaller units, or find other things to do with their technology ... maybe drill for deep water?

Oil industry viability is a function of market dynamics, not price. Price is not nearly as flexible as you think.

Fri, 07/11/2014 - 15:41 | 4948042 TheGardener
TheGardener's picture

All oil price rices reported in nominal dollar numbers!

Dollars that would once buy in the reporting period a cheeseburger on special for 49 cents and a hamburger for
69 cents.

You all have been had on a non-adjusted dollar basis.

Oil is still cheap and abundant, fuel consumption is well down and currency is about to get off the list of approved measurements.

Fri, 07/11/2014 - 15:08 | 4947954 debtor of last ...
debtor of last resort's picture

So let's fuck up oil exporting countries to average out US oil production prices.

Fri, 07/11/2014 - 15:48 | 4948080 disabledvet
disabledvet's picture

The problem is natural gas not oil.  The production curve on NG has been truly astronomical.   Of course "the WORLD" will need SA's oil.  "But is it cost effective?" and the answer is increasingly looking like no.

For an actual BTU comparison you have to include COAL which is by far the most energy efficient "item" literally "in the solar system.". In other words it is very LIGHT in weight...unlike crude which while not heavy once refined it sure is.  

Coal prices have collapsed in the USA. Now " the world" has all electric vehicles. If I don't need oil as a transportation fuel nor as a heating fuel....why do I need ANY oil...let alone Saudi Arabia's oil?

The only reason I can figure is that there is a shortage of dollars...and of course a couple of trillion in debt attached to "an oil driven recovery."

C'est la vie!

Fri, 07/11/2014 - 15:55 | 4948103 NoWayJose
NoWayJose's picture

US production has opened up two windows of opportunity - neither of which our Congress or President will pursue. One is a reduction in our dependence on Middle East oil - we could let that region burn and just sell them weapons. The other is any kind of plan to replace a substantial part of our use of oil with alternate energy. An added sadness is that both of these could be positives for the deficit/economy.

Fri, 07/11/2014 - 16:48 | 4948299 earleflorida
earleflorida's picture

what the entire ME needs is natgas which is in short supply. SA has no water to drink as desalination facilities run on natgas. qatar, iran, and Putin has them all by the balls

 

Fri, 07/11/2014 - 18:10 | 4948508 tony bonn
tony bonn's picture

saudi arabian oil is a desert mirage. it pumps far more water than oil, and its reserves are depleting faster than thought. they have no spare capacity. saudi is big but declining.

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