Saudi Arabia: from 8.5 MMbpd now to 12.5 MMbpd capacity in 2009
Saudi Arabia’s oil minister, Ali Naimi, whom we’ve previously discussed, has quieted recently bullish oil markets with his talk of supply and demand being in balance (WSJ). We observe also Saudi Arabia’s 50% difference between today’s output and 2009′s planned capacity:
The world oil market is in “much, much better health and balance” now and, if trends hold, there will be no need for further production cuts or increases in supply when members of the Organization of Petroleum Exporting Countries meet next month, Saudi Arabian Oil Minister Ali Naimi said yesterday. In an interview, Mr. Naimi said the kingdom’s production is now 8.5 million to 8.6 million barrels a day, confirming its reduction by one million barrels a day from its output about six months ago. The reduction is part of a push by OPEC to shrink stockpiles of oil that climbed sharply last year as demand growth stumbled. The U.S. benchmark crude price fell through the turn of the year to a 20-month low in mid-January of $49.90 a barrel. It has since rebounded to settle Friday at $59.89 a barrel.
Mostly mild winter weather, heavy selling by financial funds and falling oil use among developed nations have contributed to prices dropping from the record $77.03 a barrel settlement price last summer. OPEC, whose members supply about 40% of the world’s oil, is to meet March 15 in Vienna to assess its production policy…
Mr. Naimi said that beginning in May 2004, the kingdom “went almost all out” to produce 9.5 million barrels a day to satisfy rising demand. “We kept that level until August/September last year,” he said. When the kingdom saw demand slacken in the summer of 2006, it voluntarily cut production by 450,000 to 500,000 barrels a day and then by another 400,000 to 500,000 barrels a day in concert with OPEC. “So you can say one million barrels was taken off the market,” he said, “but gradually.”
The drop in oil prices from last summer’s highs and a surge in interest in rival forms of energy haven’t forced the kingdom, the world’s largest crude exporter, to rethink its investment plans. “From what we see, the world will need what Saudi Arabia produces,” Mr. Naimi said. Therefore, the kingdom will proceed with its plan to increase capacity by the end of 2009 to 12.5 million barrels a day from 11.3 million barrels…
Note that Saudi Arabia apparently nearly single handedly stopped the downtrend in oil prices by taking a million barrels a day — twice what it agreed to with OPEC — off the table, beginning in the fall. We also observe that the 4MMBPD swing between Saudi Arabia’s current output and its planned 2009 capacity is, among other things, far greater than Iran’s 2.5 million barrels per day of exports. Saudi Arabia is making business decisions of course, but these are political decisions as well.
February 12th, 2007 at 4:07 pm
Nicely done. Of course they are political decisions, and those decisions, combined with how markets work, will unnecessarily delay sufficient government and corporate investment in alternative fuels, and in conservation. Or at least it remains to be proved that this is not the case. BTW, I just added you to my blogroll list. I am glad to see this kind of fact-filled, good writing.
February 13th, 2007 at 5:10 am
They are not ‘investments’ money spent on alternative fuels. If they were there would be profits. Furthermore if there is a return on investment, the private market would/will do it. You meant to say government directed and politically controlled, taxpayer financed subsidies. You know, like paying 300 billion a year not to grow crops to keep prices high, and taxing a hundred billion for food stamps to help people afford to buy that which the government made expensive. That kind of, ahem, ‘investments.”
We could have more oil in this country but we have had production price controls on oil since the mid-50’s in which at the well head it is illegal to charge more than, I think, $25/bbl. Thanks government planning, thanks.
Or we could be like the French and get 90% of our electricity from clean burning nuclear plants, but the Democrat party is against that. The union construction guys would like the work, but they’re old school blue collar and don’t have the party oomph that trust fund enviros do, so screw’m.
Or we could in the case of New England tap into one of the world’s largest natural gas fields, which runs from Massachusetts into Canada, but again Democrats and environmentalists are against that, so we import the gas from the Canadian side and pipe it down from Bangor to Boston. Thanks Democrats.