Saudi Oil: Not as Much as They’re Saying

Via Matthew Yglesias, it seems that the Saudi claim that the kingdom can produce up to 15 million barrels a day is just blowing smoke. Business Week:

But the detailed document, obtained from a person with access to Saudi oil officials, suggests that Saudi Aramco will be limited to sustained production of just 12 million barrels a day in 2010, and will be able to maintain that volume only for short, temporary periods such as emergencies. Then it will scale back to a sustainable production level of about 10.4 million barrels a day, according to the data. BusinessWeek obtained a field-by-field breakdown of estimated Saudi oil production from 2009 through 2013. It was provided by an oil industry executive who said he had confirmed it with a ranking Saudi energy official who has access to the field data. The executive, who has proven reliable over several years of reporting interaction, provided the data on condition of anonymity to protect his access to the kingdom and the identity of the inside contact who confirmed the information.

and…

On oil matters, the kingdom’s credibility has been clouded by intense secrecy. The Saudis, for instance, refuse, unlike Russia, Venezuela, and Norway, to release detailed assessments of their oil reserves, which has made many skeptical. “They are just a bunch of empty boasts,” Matthew Simmons, chairman of Houston investment bank Simmons & Co. International, says of the kingdom’s recent promises of 12.5 million barrels a day. He is also skeptical of Saudi reserve estimates.

Oil took a small dive yesterday on speculation that global demand for oil will go down because of the high prices (which would be good). When you factor in the high demand from China and India, I wouldn’t look for them to go down much further. I was having a conversation with a friend this morning, and we talked about gas prices hitting $6.00 a gallon around Labor Day. We’ve already hit $5.00 in some places.






44 replies
  1. 1

    Next up, the Iraqi Information Minister gives a detailed report on the Saudi oil reserves.

  2. 2
    zzyzx says:

    I’m torn about this. On one hand, yes it does seem that supply can’t be ramped up much and demand has been growing. On the other though, this just feels like a classic bubble scenario. The housing bubble, the dot com bubble, there always is a pretty logical rationalization as to why the price increase has happened so quickly; it’s only after the bubble has popped that we can see it was out of control speculation.

    The price of oil has nearly doubled in the last 5 or 6 months. Maybe that’s because we’ve hit some new level of demand or that oil fields are drying out and it might double again, but it’s also quite possible that a small shift in the price of oil has been magnified by the fact that capitalism isn’t the smoothest system in the short run. $50 a barrel? No, those days have passed. I just think that it’s more likely we’ll be seeing $90 than $200 at the end of the year.

  3. 3

    Start selling from the strategic oil reserves (or whatever they call it) and you’ll see oil go down real fast. Of course, that won’t happen until Dubs is out of office. Change the speculation laws and watch it plummet further.

    In the meantime, my mom’s royalty checks from her oil well just keep getting fatter and fatter.

  4. 4
    Zifnab says:

    Peak Oil what now?

    Que wingnut off-shore drilling meme-ists.

  5. 5
    Michael D. says:

    Bob In Pacifica: Assuming you’re serious about your mom…

    I’ve seen these derricks in peoples’ yards, and I was always curious how much people made from them. I’m sure it depends on a lot of factors, but could you share?

  6. 6
    Snail says:

    For all your peak oil needs, this site is invaluable. It is made up mostly of petroleum industry veterans, and covers a broad range of subjects regarding the future of energy in this country and globally.

  7. 7
    dslak says:

    Oil took a small dive yesterday on speculation that global demand for oil will go down because of the high prices

    This isn’t quite right. Prices went down because demand is not expected to increase as significantly as it has in the past few years. Demand is still increasing, but at a slower rate.

  8. 8
    Just Some Fuckhead says:

    No surprise this report came out as soon as oil starts falling. Gotta scare up some fears of future expensive oil so speculators can make money. Meanwhile, U.S. consumption is down, world consumption is only up 1.3% over a year ago and there is no decline in the supply of oil.

    Suckers.

  9. 9
    zzyzx says:

    If this is a bubble, how cool would it be if it pops in mid November right after an Obama victory? He wouldn’t even have to do anything to be hailed as a savior.

  10. 10
    KXB says:

    It’s a bubble – whether it’s tulips or oil. Many of the so-called speculators are speculators by accident. Say a pension fund manager took a bath on mortgage-backed securities, plus the dollar is weak, and he needs to show some cash so his bosses don’t can his ass for being worthless. He goes into commodities like oil. Now, repeated by several thousand investors.

    But, in addition to speculators, there is the very real problem of a weakening dollar. Since the U.S. gov’t is the world’s largest debtor, it is in its own interest to weaken the currency. It’s in a debtor’s interest to pay back debt with a weakened currency. Of course, for any poor bastard that has to buy things with the same currency, the price of everything shoots up.

  11. 11
    ChrisS says:

    and there is no decline in the supply of oil.

    Where are your numbers coming from? Peak oil is very real. And hell with all the money we’ve been shipping to China and India over the last couple of decades while we’re deficit spending and watching our collective savings rate dwindle to zero, they’ve got plenty of money to out-bid us for oil. Demand will ease some, but oil is still a very precious commodity and declines tend to start slowly and than gain speed.

    Oilwatch Monthly

  12. 12
    dslak says:

    Since the U.S. gov’t is the world’s largest debtor, it is in its own interest to weaken the currency. It’s in a debtor’s interest to pay back debt with a weakened currency.

    I’ll say. I’m currently living abroad, and I’m loving the exchange rate when it comes to paying my debts in the US!

  13. 13
    Punchy says:

    The Saudis, for instance, refuse, unlike Russia, Venezuela, and Norway,

    Norway? The f’in Scandys have texas tea? I wonder if their oil comes shipped extra-sexy, in shapely blonde-colored barrels with a reddish-pink opening at the top, with the tariff called a “cover charge” and….

  14. 14
    calipygian says:

    If you’ve been reading every day, which I HIGHLY recommend everyone do, this wouldn’t have come as a surprise to anyone.

    If you REALLY want a chill down your spine, scroll down a little bit and see what Matthew Simmons said last Friday on CNBC.

    When the shit REALLY hits the fan, no one can say you haven’t been warned.

    Also, demonstrating the Corner’s basic lack of understanding of markets, K-Lo noted that Bush lifted the executive ban on off shore drilling and the market immediately responded by a sharp fall in prices, completely ignoring the report about demand destruction and the widespread knowledge in the oil community that the Saudis are completely full of shit with regards to their publically stated amount of reserves and their ability to increase production of those reserves.

    Anyone who relies on the Corner for their economic advice deserves to eat Alpo in their old age.

  15. 15
    calipygian says:

    If you’ve been reading the Oil Drum every day, which I HIGHLY recommend everyone do, this wouldn’t have come as a surprise to anyone.

    If you REALLY want a chill down your spine, scroll down a little bit and see what Matthew Simmons said last Friday on CNBC.

    When the shit REALLY hits the fan, no one can say you haven’t been warned.

    Also, demonstrating the Corner’s basic lack of understanding of markets, K-Lo noted that Bush lifted the executive ban on off shore drilling and the market immediately responded by a sharp fall in prices, completely ignoring the report about demand destruction and the widespread knowledge in the oil community that the Saudis are completely full of shit with regards to their publically stated amount of reserves and their ability to increase production of those reserves.

    Anyone who relies on the Corner for their economic advice deserves to eat Alpo in their old age.

  16. 16

    Actually, it’s already $6.00 in some places. There was a report on NPR about a gas station in California that has extremely high gas prices because of their location. It’s not that implausible at all.

  17. 17
    Just Some Fuckhead says:

    Where are your numbers coming from?

    Huh? Has production declined? Do you see anyone going without oil? Lines at the gas station? Rationing? There is no actual evidence of tightening supply, just a bunch of hysterical speculation bent on driving up prices.

  18. 18
    Snail says:

    Huh? Has production declined? Do you see anyone going without oil? Lines at the gas station? Rationing? There is no actual evidence of tightening supply, just a bunch of hysterical speculation bent on driving up prices.

    But this speculation isn’t coming from out of the blue. It is based on an assumption that production, while not currently declining, is probably peaking, and will not be able to keep up with demand in the near future.

  19. 19
    Zifnab says:

    If this is a bubble, how cool would it be if it pops in mid November right after an Obama victory? He wouldn’t even have to do anything to be hailed as a savior.

    See, that’s the thing. Right now, oil is really the only safe investment people know how to find. When that bubble pops, it’ll be a refreshing breeze at the pump, but I wouldn’t want to be an investment banker or a pension fund manager in that climate.

    I will say this much, by the time we see the next economic shake up, people are going to be begging and pleading for regulation. Wall Street can only take so many shockwaves like this at a time. And with the dollar declining, people don’t even feel safe cashing out and shoving money under mattresses. What do you do in a climate like that?

  20. 20
    zzyzx says:

    See, that’s the thing. Right now, oil is really the only safe investment people know how to find.

    Whatever happened to gold? Isn’t that the usual safe haven. Invest there and stop fucking up everything else.

    And with the dollar declining, people don’t even feel safe cashing out and shoving money under mattresses. What do you do in a climate like that?

    Convert your money to Euros and put that under your mattress?

  21. 21
    Just Some Fuckhead says:

    It’s a bubble – whether it’s tulips or oil.

    The only ? is what will the bailout look like. I’m hoping to one day be able to say, “As a footsoldier on the losing side of the Bush-McCain War On Teh Middle Class, I couldn’t afford to invest with Goldman-Sachs. Now through the magic of plutocratic capitalism, I own Goldman-Sachs with three hundred million of my impoverished fellow citizens.” Maybe I can even leverage it into a run for dogcatcher.

  22. 22
    Decided FenceSitter says:

    After doing some grad-level research on derivatives and speculation; the oil futures market is being driven by the fact that you only need 5-6% down to purchase “on the margin” to compare for stocks, you need about 50%. One of the proposals Congress is ruminating on will drive up the amount needed to speculate.

  23. 23
    KXB says:

    “There is no actual evidence of tightening supply, just a bunch of hysterical speculation bent on driving up prices.”

    Some countries, such as Mexico and Venezuela, do seem to be have diminishing output. But that is not because they are running out of oil, but because their equipment is old and falling apart.

    One of the selling points of offshore drilling is not that it will lower prices at the pump, that is unlikely in the near term. It is that we can expect better equipment to be used. You can make a jobs case out of it. If you are concerned about pollution, then you can just as easily criticize agriculture, which is wasteful of both water, fertilizers, and money.

    As for whether Americans should load up on euros, for all the pop-culture mavens, Jay-Z, always one step ahead of other hip-hop artists, was flashing euros in the video for “Blue Magic”.

  24. 24
    Just Some Fuckhead says:

    It is based on an assumption that production, while not currently declining, is probably peaking, and will not be able to keep up with demand in the near future.

    For which there is no actual evidence. But in the meantime those rumors are helping to make a lot of money for speculators and oil companies.

  25. 25
    calipygian says:

    Some countries, such as Mexico and Venezuela, do seem to be have diminishing output.

    Mexican output is falling because Mexico’s largest field is in a catastrophic state of collapse because they pumped all the oil out of it.

    You think we have immigration problems now? Wait until Mexico quits exporting oil, which should happen literally anytime now.

  26. 26
    Punchy says:

    Price of oil tanking again. Bubble being partially popped this week. Of course, this’ll only raise gas prices, based on voo-doo petro economics that always gives huge profits.

  27. 27
    Snail says:

    For which there is no actual evidence. But in the meantime those rumors are helping to make a lot of money for speculators and oil companies.

    While there is certainly a great deal of debate on the future of oil production, to say there is no actual evidence of an impending decline is simply not true. Mexico’s output has fallen sharply, the North Sea is cratering, and even Russia has started to see diminished production. As noted above, Saudi Arabia is something of a black hole, but given their repeated failures to live up to pledges of increased production, there is genuine reason to be concerned.

    None of which takes into account the huge increase in demand from China and other developing countries. Even if production stayed at current levels, increased demand would naturally lead to higher prices.

  28. 28
    calipygian says:

    even Russia has started to see diminished production.

    July 2 (Bloomberg) — Russian oil production declined in June, bringing the world’s second-largest crude exporter closer to its first annual drop since 1998.

    Production fell to 9.77 million barrels a day (40 million metric tons a month), 1 percent less than in June last year, according to data released by CDU TEK, the dispatch center for the Energy Ministry. Output rose 0.2 percent compared with May.

    Russia’s production may have peaked as producers struggle with aging fields, rising costs and increasingly remote new deposits, senior executives at Moscow-based OAO Lukoil and TNK-BP, the country’s two-biggest independent oil companies, have said. The finance and energy ministries are developing tax-cut proposals in a bid to revive growth.

    Russian oil executives are saying that Russian production may have peaked. And the evidence suggests they may be right. After all, what kind of fucknut would pump LESS oil when the price of oil is at an all time high? That makes ZERO sense.

  29. 29
    Brachiator says:

    Oil took a small dive yesterday on speculation that global demand for oil will go down because of the high prices (which would be good). When you factor in the high demand from China and India, I wouldn’t look for them to go down much further.

    Explanations of the variation in the price of oil sound like after the fact rationalizations. Demand for oil hasn’t actually decreased, but oil prices have declined because of fears that demand might decrease sometime in the future.

    And when you put the supposed huge increase in demand from China and India into context, there is still no reason for the recent spike in oil prices. According to the CIA World Factbook, the US consumes a whopping 20.8 million barrels a day, China consumes 6.9 million barrels a day, while India consumes a relatively paltry 2.4 million barrels a day. But putting this into further perspective, this does not represent a huge increase in consumption (Oil Consumption Continues Slow Growth)

    Global demand for oil reached 85.7 million barrels per day in 2007, a modest 1-percent increase over the 84.9 million barrels consumed daily in 2006. This marked the third straight year in which oil demand grew at an annual rate of less than 2 percent. Despite the slow growth in demand, oil prices rose from just above $50 in January to near $100 at year’s end—close to the all-time inflation-adjusted price record that was reached in the early 1980s.

    And here is the kicker in a world with supposed increase oil demand (from the same report):

    Saudi oil production continued to fall in 2007—a voluntary pullback to accommodate a softening market, according to Saudi officials. By late 2007, however, Saudi production was 8 percent below the peak level reached in 2005, despite the fact that oil prices had risen roughly $20 per barrel since then. Uncertainty over the condition of Saudi oil fields and their ability to increase or perhaps even sustain current pro­duc­tion levels is the single largest unknown facing world oil markets.

    Also, Chinese oil consumption is not a bad thing, nor does it compete in a simple way with US oil consumption. For example, China’s GDP increased by 10.6 per cent in the first quarter of 2008, a great deal of which translated into cheap goods which Americans and the rest of the world just love to buy. On the other hand, the US, which has been declining in manufacturing over the past 25 years, has seen its oil consumption barely change over the past three years.

    Shorter version: the US produces less but still loves to waste oil, while other countries, notably China and India have become more productive.

    Meanwhile, Bush totally ignores US inefficiencies (increased mileage standards anyone), and holds out the false promise that if we just do more drillification offshore and in Alaska, then oil prices will magically plummet.

  30. 30
    Fledermaus says:

    “We’re all fucked, it helps to remember that”

    — George Carlin

  31. 31
    barkleyg says:

    Let me give you the bad news, followed by bad news.

    Saudi oil reserves: Are there as many barrels of oil under their ground as estimated? I heard over a year ago that there are real questions about Saudi reserves, and the thought is that there ARE NOT as many barrels of the reserves as the Saudi’s say. The Saudi’s are OVERSTATING their reserves to give them more world power and influence. The more(?) oil reserves you have, the more influence you command; hey, a LOT less oil reserves and you are that less influential!

    Long story short: The Saudi’s don’t have as much oil as everyone thinks they have. Instead of admitting it, they say they are lowering production. Production will continue to slow, because they don’t have as much oil as they say and are trying to extend the amounts they have.

  32. 32
    jake says:

    The Saudis, for instance, refuse, unlike Russia, Venezuela, and Norway, to release detailed assessments of their oil reserves, which has made many skeptical.

    Because they don’t want Captain Codpiece adding them to the Axis of Evil and running about screaming “VRRROOOOM, BOMBS AWAY!!”

  33. 33
    Just Some Fuckhead says:

    The only reason to keep oil reserves secret is to fuel

  34. 34
    Just Some Fuckhead says:

    The only reason to keep oil reserves secret is to fuel (HA, Satire Bitches!) doubts about supply, allowing profit margins to be kept artificially high. There is no tangible benefit that comes with an overstated reserve, but there is a clear and obviou$ up$ide to hiding supply and pushing uncertainty.

    OTOH, if oil was in imminent decline, simply revealing this would allow oil producers to make crazy money for as long as it held out. Why wouldn’t they do this? Because of some mellifluous “world power and influence”. Please.

  35. 35
    D. Mason says:

    After all, what kind of fucknut would pump LESS oil when the price of oil is at an all time high? That makes ZERO sense.

    The kind of fucknut that sees profits rise as production declines.

  36. 36
    Snail says:

    The only reason to keep oil reserves secret is to fuel (HA, Satire Bitches!) doubts about supply, allowing profit margins to be kept artificially high. There is no tangible benefit that comes with an overstated reserve, but there is a clear and obviou$ up$ide to hiding supply and pushing uncertainty.

    Actually, there is a reason for overstated reserves. In the mid 80s, when oil prices were quite low, OPEC instituted a quota system that limited how much oil each OPEC member state could sell on the open market. The size of each member’s quota was based on that country’s estimated reserves. Miraculously, overnight each of the member states reserves jumped dramatically, as they all jacked up there numbers to try to increase the size of their quotas. Since then, many of the OPEC members (particularly Saudi Arabia) have kept their reserve figures secret in order to take advantage of this absurd loophole. Of course, with the current strain on the oil market, these quotas are no longer necessary, but I guess that since the Saudis have been playing it so close to the vest for this long, there’s no reason to stop now.

  37. 37
    calipygian says:

    There is no tangible benefit that comes with an overstated reserve, but there is a clear and obviou$ up$ide to hiding supply and pushing uncertainty.

    No, there is a clear and tangible benefit to overstating reserves and that is to seize more of OPEC’s export quota and being able to export more oil.

    So when Kuwait declared that they had 99 billion barrels of provable reserves but it turned out that they only had 24 billion, that allowed Kuwait to claim an export quota as if they had 99 billion barrels and not 24 billion.

    That is a tangible benefit of overestimating your reserves.

    Overestimating your reserves, like everyone suspects Saudi Arabia of having done, and then not pumping more makes no sense unless you just can’t pump anymore.

    You can keep on rationalizing, but we will NEVER pump 120 million bbls/day, which is the estimated demand in 2020. Total production of crude peaked at about 85 million bbl/s a day in 2005 and has stabilized.

    Even if a giant trillion barrel field were discovered tomorrow, we couldn’t get at it because as Matthew Simmons will tell everyone and anyone, there isn’t enough exploration and drilling equipment.

    Keep dreaming. The center of the earth is not a creamy nougat of abiotic oil.

  38. 38
    Snail says:

    Man, I feel like Calipygian and I are working a tag team here.

    Btw, Calipygian, nice ass!

  39. 39
    calipygian says:

    @Snail –

    There is a lot of head in the sand thinking out there, even among people who are normally reasonable.

    The cheap energy years that we have been living in is an aberration in human history.

    And think about it, anyway – how bad will an 18th Century lifestyle really be knowing what we know about science and medicine today?

    Probably a lot less stressful, really.

  40. 40
    Brachiator says:

    Just Some Fuckhead Says:

    The only reason to keep oil reserves secret is to fuel (HA, Satire Bitches!) doubts about supply

    No. That ain’t satire; it’s just word play.

    This is farce:

    Oil prices tumble again on surprise US supply jump

    NEW YORK – Oil prices tumbled Wednesday, extending a steep and unusually volatile slide into a second day, after the government reported a surprising spike in U.S. crude and gasoline supplies. …

    Sharply increased crude and gasoline supplies were the immediate cause of Wednesday’s decline.

    The Energy Information Administration reported that U.S. crude oil supplies rose by 3 million barrels, or 1 percent, last week. That is the opposite of the 3 million barrel draw analysts surveyed by energy research firm Platts expected. Gasoline supplies also leapt unexpectedly.

    A number of market participants speculated that at least some of the week’s sell-off was the result of cash-strapped banks selling energy contracts to raise money for other needs. And widely used computers programed to sell once prices fall to certain thresholds can accelerate price declines, much as an avalanche gains steam the further it slides.

    Golly, gee. Where did this oil and gas magically come from?

    So, let’s see. Some of the fluctuation in the price of oil is just not strongly related to low supply, high demand, consumption or reserve estimates, but may in part be a side benefit of the bank crisis.

  41. 41
    4tehlulz says:

    The center of the earth is not a creamy nougat of abiotic oil.

    It’s….it’s not? :(

    FUCK YOU MAN YOU LIE YOU MEANIE

  42. 42
    Alan says:

    Here’s an interview of Jim Rogers, a noted Wall Street Wizard, where he discusses the supply of oil. I’d recomend the whole 5:35 minutes, but the discussion of oil begins just after three minutes into the video.

  43. 43
    grumpy realist says:

    Russia also has the problem of aging infrastructure and the fact that potential new fields are in places hard to get to (i.e., Siberia.) Plus the Kremlin habit of stomping all over anyone they want to get the upper hand over (have you looked at the BP meltdown?) has given proverbial cold feet to a lot of non-Russian companies who DO have the technology…

    Same with Mexico. They’ve got potential oil-producing areas, but the legal set-up within Mexico forbids Mexico from doing joint ventures with international companies….oops.

  44. 44

    Michael D., you’re asking to the wrong person. My mom isn’t on the net either. And she seems to be in damned good health, so I can only report the largesse, not share, Mike.

    Back in 1948 my grandfather did some mineral rights deal in the Mississippi delta. They capped the well and it sat for over fifty years. But now, what with the cost of oil going up, yeah. Big bucks. Among my mom and all the aunts and uncles they’re pulling in close to 90k a month. And the company is going to drill another well, so there must be lots more down there.

    And the oil sat in the ground for fifty years, like it was in the bank.

    I’m just not much of a peak oil fan since all the information we get about how much oil there is comes from Big Oil, when we get that information. I suspect that I’m more likely to die from what petroleum does to the the climate than from running out of it.

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