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Is Saudi Arabia Setting The World Up For Major Oil Price Spike?
Submitted by Nick Cunningham via OilPrice.com,
In order to maintain a grip on market share by pushing U.S. shale producers out of the market, Saudi Arabia (and OPEC) is willing to use up its spare capacity. That could lead to a price spike.
Saudi Arabia produced 10.3 million barrels per day in the month of March, a 658,000 barrel-per-day increase over the previous month. That is the highest level of production in three decades for the leading OPEC member. On top of the Saudi increase, Iraq boosted output by 556,000 barrels per day, and Libya succeeded in bringing 183,000 barrels per day back online. OPEC is now collectively producing nearly 31.5 million barrels per day, well above the cartel’s stated quota of just 30 million barrels per day.
The enormous increase in production comes into a market that is still dealing with extraordinarily low prices. The move could be interpreted as a stepped up effort on behalf of Saudi Arabia to maintain market share at all costs. More output will prolong the slump in oil prices, which will force even more U.S. shale production out of the market. The signs of success are already showing – the U.S. is set to lose 57,000 barrels per day in production in May, and rig counts are still falling.
The increase in Saudi production would also suggest that global markets are well-supplied. But, more Saudi oil comes at the cost of a shrinking global spare capacity. Saudi Arabia is essentially the only oil producer that has significant slack production capabilities, which can be ramped up or down depending on market conditions. That is what has allowed Saudi Arabia to influence prices to its liking for so many years. But when the Kingdom produces near flat out, it starts to run out of ammo. It is kind of like a central bank running interest rates near zero – once you are at that point, you run out of tools in the event that you need to do more.
OPEC’s actual levels of spare capacity are somewhat opaque, which makes estimates difficult. But Saudi Arabia producing at its highest level in three decades certainly eats into that reserve. Moreover, Saudi Arabia typically consumes more oil in the summer for domestic purposes, which could further shrink spare capacity in the months ahead. PIRA Energy Group warned of such a scenario in its latest weekly oil report. “Incremental Saudi crude burn demand could push its volume this summer to levels that would substantially reduce global spare capacity, at a time when oil markets will be tighter and geopolitical risks to supply are growing,” PIRA wrote on April 14. Spare capacity may shrink to just 1.7 million barrels per day.
Saudi Arabia is succeeding in pushing out U.S. shale production, but in the meantime, the world is getting hooked on low prices. Oil demand is growing quickly – the IEA predicts global demand will jump from 92.66 million barrels per day in the second quarter up to 94.67 million barrels per day in the fourth quarter.
That will put oil markets in an interesting situation. U.S. production will continue to shrink as the year goes on and Saudi Arabia will have very little spare capacity. If a supply disruption occurs somewhere – more loss of Libyan oil, violence in the Middle East, or a faster-than-expected drop off in U.S. production – the Saudis will be left with little firepower to control a price spike (not that a price spike would necessarily be bad for them).
There is an argument that U.S. shale has emerged as a sort of collective swing producer – shale operations ramp up and down much quicker than conventional drilling. But they don’t turn on and off that quickly. They can’t mimic the latent supply that the Saudi’s have in their back pocket. Furthermore, shale production is the result of drilling by hundreds of companies, and future investments and drilling will be made by private individuals based on individual financial circumstances, as opposed to state-level geostrategic calculations.
In other words, shale producers, now that they are shrinking their footprints and production levels, will not be able to step up to the plate in a pinch. If global supplies shrink unexpectedly, and Saudi Arabia has run down its spare capacity to low levels, oil markets will tighten to a precarious point.
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No.
I certainly think that the Saudis know the oil market and will take full advantage: Oil Price Drop Root Cause Analysis
The Saudi's are using the Scorched Earth method. They will stop once they are the market. Maybe they then buy up all that's destroyed? Crazy but so are the Saudi's. Billions among a few are at stake.
Fuck the Saudi's Royal Family!!! Bunch of Allah-damned terrorists who funded 9/11. And FUCK BUSH AND OBAMA for continuing the coverup.
If Bandar Bush had been implicated in facilitating 9/11 we could have wound up with President Ketchup Boy...
And if not for the stick save by Obozo, we would have had President "Bomb, Bomb, Bomb Iran"
Look at the bright side, things could always be worse, much worse.
If supply and demand were ever remotely influential on the pricing of commodities futures, gold and silver should have already had a "price spike" far higher and further than anything on the planet.
Sinice they haven't, great analysis - but it's a rigged casino.
Pssh duh fuck the Saudi's. I'm just saying what they're doing.
New Z-hedger's aren't the good'ol Z-Hedgers.
Very true, it could have been artHillery instead.
Saudi's never funded 9/11 unless they were paying Cheney (and others), in which case, I agree.
Bush Jr. was too stupid to cover up anything and was never part of it. Obama is just another figurehead.
Somehow muricans, when questioned about murkin military agree that the US is the most powerful nation in the world with super spy stuff, super weapons, super everything, but somehow a bunch of drunken failed pilots managed to hijack not 1 plane, but 4, and crash them into 3 different buildings and there was no response from the might US at all.
Sounds believable to me. Maybe I am wrong and there was a response
https://www.youtube.com/watch?v=RRJAI4-e7Xw
I think that the US knows the Saudis can have an enormous impact on the oil industry and its economy as a whole. Maybe this is why those 28 pages that were missing from the 9/11 report that supposedly points to Saudi involvement is gaining traction, even with MSM.
We live in very interesting times...The Saudis could end the petro dollar. The bankers will try anything to not let that happen, including destroying economies and going to war. Protect yourself and begin preparing for that day. Learn survival skills, stock up on food and water, buy water filters, plant a garden, stock up on guns and ammo, have a fair amount of cash for the immediate hours/days/weeks after the crash, and buy some gold and a lot of silver.
The more people that are prepared, the better it will be for everyone. More prepared people means more private trade. More prepared people means less government dependence. I know it's difficult to educate and wake up your loved ones. I have educated lots of people by giving them a candle with a silver coin: https://www.etsy.com/shop/ScentSavers?ref=hdr_shop_menu
Once someone understands the lies and deception of the Federal Reserve they begin to get to some degree that they need to change their lifestyles so they can adapt to a post-dollar world.
stopped reading at...."the signs of success are already showing-the U.S. is set to lose 57,000 barrels per day in production in may, and rig counts are still falling." however he pointed out in the previous paragraph that opec is producing 1.5 "MILLION" barrels extra "PER DAY"!!!!! in reading another zero hedge article which stated that the rig count is down 50%......we only get a loss of 57,000 barrels a day and that is "next month". seems to this man that the oil patch has alot more pain in store with the price level. wake me when the bond defaults and company bankruptcies start flowing like oil.
Agreed...no! All the oil knife-catchers better hope for a dollar collapse to make their energy investments work...because demand for oil will only continue to fall apart.
Global demand is falling as global credit is falling apart...without the credit flow, real demand is far lower...look at the collapsing demand data (in the link) from OECD nations and now the BRICS demand is likewise starting to roll over as the credit bubbles pop...Since '00, a 1300% increase in credit in China resulted in a 120% increase in oil demand. Now the Chinese housing market is cooked...and the driver for oil consumption increases DOA.
http://econimica.blogspot.com/2015/04/how-peaking-global-crude-oil-production.html
in the long-term, that may very well be true
but short-term oil can still spike back up before slowly sputtering down again med-term
you don't have to believe in a long-term recovery to "invest" in a short-term bounce.
The Saudi's need income to fund their borders and current war.
Yes, and those of us with producing wells now will not mind a bit.
Seems like an act of desperation on the part of the Saud. They are squeezed between lower prices, the banks and a war on their doorstep.
The shale people can mothball for a while and then bring things back ... possible under new financing. If they want OR they can just keep producing.
... and then there is the ANWR.
brought to you by the energy traders about to go short. Demand in the US and Europe are flat....the rest of the world is about to get the technology that allowed the USA to become the biggest energy producer in the world. This is a joke...right? The central banks are imploding economies about the world with their interest rate debacle....oil might go to $10/bl at the rate we are going. Gold is screaming depression! Zero rate is screaming Depression!
Well, there is the summer driving season, but beyond that I don't really trust the IEA's forecast more than the EIA's forecast. Not sure 'bout AEI's forecast.
Where will we drive to this summer since every place is fucked?
I was just gonna leave my car running in the driveway all summer. Just doing my part.
Smart; saves on tire wear. Thumbs up and thanks for the laugh!!
+1
The Saudi's assume they are the tail that wag the dog but it's a big nasty world and a lot of people would like to see them dead and when you have allies like Obutthead, you may be bent over for your own good by the 'special' people.
You can bet your sweet ass that highly levered domestic oil producers can and will ramp back up in a goddamn hurry in order to service their extraordinarily costly debt. The only way they can do so is to Drill Baby, Drill......
Yep, there are vacant lots with rigs lined up and leases sitting there, already prepped and the sheep will be happy to buy a few more "high yield" bonds.
Exactly right....the excess capacity/means of production is there, salivating for a chance to get back in the game at $70/bbl
Of course right after the new Fed/State gas tax increases are in place.
I think demand is skewed if it includes China's purchases for storage.
Israel pushes to have “anti-Semitism” recognized as international crime http://davidduke.com/israel-pushes-to-have-anti-semitism-recognized-as-international-crime/
Hymie never learns, does he?
Let me get this straight; if I say fuck the bankers, fuck the MSM or fuck SodaStream it will be an international crime???
As clear an example of confirmation bias as I have seen in a while. Keep searching for any possible reason for oil prices to rise buddy!
BTW, I am actually long oil right now, but getting very close to taking profit. My finger's on the trigger.
Haha you're giving the Saudis wayyyy too much credit.
Full disclosure, I am long oil.
Yes, the Saudi's are the nail, not the hammer.
If oil goes back up then fracking starts again. The Saudis can not allow that or what was the point.
so seems the point will be to buy up debt-distressed shale properties from the fragmented small firms....then juice prices big time...so the signal for a real bottom in ol will be deals and transactions getting done in the US
It's the demand side of the equation which will take center stage soon. And quoting the IEA isn't exactly the best source.
Yes, but only after they've completed the hostile takeovers in the US Shale industry at 10 cents on the Dollar.
Citi, the bank they control, will do the financing, with money out of thin air. Didju know that?
"In other words, shale producers, now that they are shrinking their footprints and production levels, will not be able to step up to the plate in a pinch"
Wanna bet?? Funny how the "oil experts" don't have the first clue about the oil patch.
It's why the Saudi's still wear towels on their heads...
"price"... "market"...
LOL!
All I know is that if you have oil, you can actually do and make real shit, period.
Some Buffet math: 10.3 million barrels/day x 31 days x 5.6 cubic feet/barrel equals a cubic volume of oil ~1,200 feet on a side.
3+ supertanker loads.
some very basic google. Capacity of ULCC is 2-3.7 million barrels. 10.3x31days /2 and 3.7 = 86 - 159+ ULCC loads.
I guess 3+ is still right, but seems misleading.
time to buy itm call leaps
In the short term it all depends on what happens to Irani/Iraki production this summer...Iran can increase by 1.5 Million B/D its own production.
Saudi is drilling like there's no tomorrow.
Rigs popping up everywhere.
This isn't some shot in the dark; eye-witness!
~ lower demand + higher prices = perfect recipe for stag/deflation~ Yum Yum...
I see this already everywhere. Retail prices are up considerably over last year and it's not because the input costs have gone up. Retailers are trying to make up for declining volume by jacking up prices. If you really want it, you will pay double to compensate for the poor slob who can no longer afford to participate at all.
Who believes that the amount of oil is attached to the price you actually pay at the pump? They determine the amount you will pay and since there was no stimulus with lowering the gasoline price, then it is time to bring them up. They will cause or manufacture a supply disruption for the propaganda scapegoat, but you will pay more by June 1st.
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Just remember the Central Bankster's job is "Price Stability"; which translated properly means we determine what you all will pay for each commodity and even to the extent that we will tell you how much water you can use to flush your toilet and we will make you pay more for saving the water. So poop one & flush it twice; you are paying for it anyway.
Seems to me that the US should take advantage of this situation and setup an American oil cartel market place with the America's countries and allow our oil producers to pump baby pump so we don't have to depend on Saudi anymore for oil. Why are we even buying oil from the middle-east anymore? We have the capacity now to supply our own country with oil for gasoline, diesel, natural gas, etc. Something is fishy here!
The US doesn't buy much oil from Saudi Arabia. Oil is a fungible world wide commodity. It doesn't matter who is buying the oil from who, but the overall demand vs. consumption (if you believe that prices are supply/demand driven at this time)
US daily consumption approx 19million bpd.
Saudi Arabia purchase approx 1.15million bpd or about 6%
and no, The US does not have the capacity to supply itself with all it's oil it consumes.
Iran, Iraq and Lybia more than compensate for the drying up of Ghawar
http://en.wikipedia.org/wiki/Oil_reserves_in_Libya
Much of Lybia hasn't even been tapped into
it's going to be epic
cmon,.. everyone knows the saudis are puppets.
Nothing happens without a blessing or order. In this case order.
Plenty of reasons why, just pick one!
They are 100% in allegiance and subordinate to the Anglo-Saxon elite/military-industrial-oil-banker complex. We know this because whether it is a Dem or Rep in office new 60 billion weapons/military training deals get signed between the US and House of Saud...doesn't matter if it is high prices or low/doesn't matter if the publicly stone women and make them wear potato sacks on their heads and doesn't matter how many heads they cut off in public.
Doesn't matter if they have links to 9/11 bombers and fund the most islamofacist brainwashing schools...House of Saud gets treated like teachers pets in the mid-east while secular countries get bombed to stone age.
so ya the increase in production with Iran is alligned as well...they are being allowed to increase production. why and for what purpose in 12-months-24 months? not sure
Are the Saudis acting independently?
Their latest full-blown cooperation with Zion over the Ukraine and Syria says no.
So the question should be, "Is Zion Setting The World Up For Major Oil Price Spike?"
The banksters need to repay us.
Puppets only appear to move independently. Look for the strings.
There was a 5% spike in the price of gas at my local gas station this week.
I think the plan is to push the price so low that all the fracking companies go out of business, then whiplash it by abruptly curtailing supply, sending the marginal price skyrocketing. Not sure how well that will actually work in the face of collapsing demand, but it's sure to cause some serious movement.
Nah, you're not making any sense.
Fracking is more flexible than you're making out, you just misunderstand the fixed and variable cost structure that fracking shares with most everything.
In a word?
Yes.
They're setting up the world for a major price spike...and to be the only ones supplying into that spike in 50 years.
The demographics in Europe look terrible. The locations of the Russian's energy fields relative to the locations of islamic extremeists looks terrible.
Meanwhile ISIS and Al'Queda before it have undeniable ties to the Kingdom, whether as a disposal method for extremists or as a condition setter for a future Caliph.
It hardly matters. People who think that everything done by anyone who has ever worked with the US is done at the direction of the US gov't are nuts.
Russia/China isn't 'pushing' for a multi-polar world. They already have one. That's the whole point.
It is every Power for themselves, as the post-war international order crumbles. So you get the US tightening the screws at home, and flailing around, needle and thread in hand, trying to keep that old order together, going first to N Africa, then the Levant, then Europe and Asia, etc. In the mean time you've got ISIS becoming very threatening to the middle eastern oil fields...but staying conspicuously away from the Kingdom and its allies. Both Russia AND the US stirring up trouble in Syria and Ukraine...with the EU added in that last for a really unstable mix... Meanwhile it appears the US is now trying to inflame intra-islamic tensions by making overtures to Iran...and COINCIDENTALLY Irani backed militants take over a Kingdom right next door to Saudi Arabia. And then you've got the Chinese building up their military, and stacking gold, while rubbing their hands together, looking at their neighbors, then meaningfully back at the calendar.
You don't have to be a foreign policy genius to see what is going on here. The post WWII order is done, or almost done, and everyone is looking for what they can grab.
So China wants the Spratleys, Taiwan, and a few other goodies. Russia wants all those annoyingly independent former Soviet republics back into obedience training. The US doesn't want anything coherently in the international arena, but is getting set to potentially confiscate everything from their populace. The EU is talking about establishing their own collective security by way of an all-European Army. And the Islamic world looks split once again sharply between Shia and Sunni, with Iran making inroads toward Mecca through Yemen and Iraq, while ISIS is spreading all over North Africa and the Levant...and alarmingly looks poised to inherit Southern Europe as a result of demographics alone.
And -excuse me- Am I the only one who finds it alarming that oil production that is supposedly being controlled by ISIS right now rises and lowers in lockstep with the KINGDOM???????
That is no ones plan. That is the natural result of 'honor amongst thieves' - honor amongst those who have none, an imaginary animal.
Yah! Of course they're "setting everyone up"... They'll spike the price at exactly the same time everybody realizes that they don't even have a spare Coke bottle to put any of the newer, higher-priced oil into....
At which point US well numbers spike, which then force the Saudis to do whatever the fuck it is once you've finally realized you've been beat.
prolonged low prices will force (though they have already started ) them to withdraw their petrodollars they invested in buying debts , assets ( basically provided liquidity to markets ) .
not only is the world awash in oil, but the price of oil is always far higher as a result of the financialization of oil .
without oil futures, the regular price of oil would be 20% lower than it is because of the implicit tax of the middle market makers.
while many say the cost of financializing an asset is worth the bonus of having a liquid market which results in efficiencies (one might call the subsidized shale oil revolution a perfectly efficient reaction to the high oil prices of 2007) --------------
it could also simply be that the world is awash in oil because the 'liquid' markets themselves incentivize malinvestment. while mnay are ready to call the shale and tar oil perfectly natural responses to high oil , it is obvious that they are also sources of oil of far lower value due to lower content per unit of energy brought out than put in. "low eroi" compared to light sweet crude.
perhaps the world woudl do better to invest in natural gas and natural gas liquids more than it does in 'unconventional' oil.
and this is precisely why fracking IS A GOOD IDEA. fracking provides a cheap limitless energy source with high eroi.
it might not be great for the environmetn according to some folks, but natural gas is a perfectly good source of fuel and is not an unconventional hard to obtain oil source like shale oil or ,worse, tar sands.
all of this begs the question of how the gulf states will manipulate the market once the syrian pipeline contracts are in place.
That a price spike is coming is a no brainer but the multi million question, as always, is when?
How about the limited storage capacities, supposed to weigh on oil prices down by the end of Q2? http://www.zerohedge.com/news/2015-03-10/us-may-run-out-oil-storage-soon-june
Is oil demand expected to pick up due to current low prices? Doesn't that seem a little odd if we consider current oil prices being a result of a slowdown in global growth? you can't make a horse drink...
Saudis got 71 years of oil at 10 million barels a day. Even if they are lying about their oil reserves by 40% (wikileaks), they still have 42 years left... so this ain't over by a long shot.