The game plan was that the Fed was done and the economy seemed suddenly not so weak so the dollar would continue to strengthen.  Plus the Saudi’s are bringing on their last big new fields this year and next.  Plus oil demand growth is slowing all over except among the oil exporting countries.  Plus oil tried to bust $120 for a while and failed after a long and strong rise.  So clearly the fundamentals and the technicals are aligned to say that oil is headed for a correction.  Right? 

And right …

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A few months ago, as the oil price was butting up against $100 and then finally going through it and then dropping back down below it, most respected oil analysts whom I read believed that the near term would see lower oil prices.  Most thought early 2008 would see a retracement into the low $80’s. That expectation is one reason the recent strong and consistent rally to just under $120 as of now is so dramatic.  But what comes next?  How much of the last $20  is speculation and …

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Khurais, with an estimated maximum flow of 1.2 mbpd is the Saudi’s best hope for adding capacity and/or blunting the eventual decline of Ghawar, their giant field that has been pumping 5 mbpd for decades. The Saudi’s have been circling around the Khurais field for 40 years, picking at it and then backing away at various times as they found difficulties.  Finally they decided to go all in, tacking one of the world’s most challenging and expensive oil production problems.  The cake will be baked in short order and we’ll …

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Saudi King’s Quiet Bombshell
By Steven Andrews & Randy Udall [Email address: editor #AT# evworld.com - replace #AT# with @ ]
Eight oil industry experts give their views on King Abdullah’s ‘keep ‘em capped’ announcement
Open Access Article Originally Published: April 21, 2008
Reprinted from the April 21, 2008 edition of Peak Oil Review, the weekly newsletter of the Association for the Study of Peak Oil, USA. Given the historic record price of oil last week touching near $117 and the admission by Russia that its own oil fields have peaked, the decision by the Saudi’s and other Middle East producers to essentially …

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Below is a report from Reuters published in Arab News detailing costs and plans for new Saudi oil capacity and stating that they will not add to capacity beyond the plans in place that will be completed by 2009.   The rationale given is that demand forecasts are coming down (for 2030).  That seems like a fairly lame excuse.  Reality, I suspect, is that either it is no longer possible for the Saudis to add spare capacity or that thet simply prefer keeping the oil in the ground.   Either way, the …

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Saudi Arabia is considered the “swing producer” of oil because conventional wisdom presumes they have the spare capacity and the will to boost or reduce supply as global conditions require.  But some doubt KSA true capacity .

If KSA is actually constrained, Nigeria and Iraq may be the world’s real swing producers in two senses.  First, they both have the geological opportunity to increase production substantially over a period of just a few years.  Second, and more relevant in the short term, both countries face a real risk that political problems …

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Included in a recent announcement that the Saudi’s have reduced oil production from 9.2 mbpd to 9.0 mbpd to reflect lower seasonal demand was a more general and strategic announcement.  The King himself said he has ordered various new oil discoveries to be left untouched for the benefit of future generations.  That is precisely the strategy of oil hoarding that I have pointed to for some time.  The difference is that now it makes enough obvious sense to every observer in the world that the King can publicly admit to …

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Politics and oil each influence the other, to state the obvious.  I note  two examples.  The first is the growing tensions between Syria and other Arab countries in regard to Lebanon, which was highlighted in an excellent New York Times piece today. Both Saudi Arabia and Syria seek to determine the political outcome in Lebanon.  KSA is allied with Egypt and Jordan while Syria is allied with Iran, a non-Arab country.  The potential for a military escalation of the conflict seems real.   Obviously, any armed conflict in the Middle …

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Secretiveness is a universally acknowledged quality of Saudi Aramco.  Since there is no transparency, rumors are about all that oil analysts have to go on, unless they simply want to buy into the company’s PR releases at face value.   Journalists are in the business of uncovering facts not otherwise known to the public.  Therefore, I was interested to read a comment by a British journalist that was buried in a longer piece about the general conditions pertaining in the oil markets today.  I thought the report by Mr. McRae was, …

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KSA has increased its fixed expenses lately in regard to social and defense spending, and they fear a sharp drop in oil prices to the $75 area before prices go higher.  Any increase in production risks the lower prices coming sooner and harder.This mind-set may be why they do not increase production, given that the current price and production regime is giving them a very healthy fiscal surplus Saudi financial plans rely on high oil prices By Nadim Kawach on Thursday, February 21 , 2008 …

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The following short piece from the Wall Street Journal defines two extreme views - one Mr. Saleri a former executive of Saudi Aramco and the other Matt  Simmons. Saleri says technology will succeed in deferring peak oil flows for another 40 years or more.  Simmons says we’ve already seen peak flows and a true disaster lies only a short way down the road.  Incidentally, Simmons seems to have one fact on his side: for the past nearly three years the production of crude oil has been flat.  Other …

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Below is an essay by Steve Yetiv and Lowell Feld, both well credentialed academics, that was published in Salon.  It discusses a number of reasonable possibilities that may underlie the apparent Saudi reluctance to raise oil production.  Only one possible reason represents a danger to the world economy: they can’t.  But whatever the true reason, the fact is that KSA production has declined for several years. That by itself seems like a red flag.  Enjoy.
2/6/08
Why the Saudis aren’t lifting a finger to ease oil prices
Their break from past oil policy is significant.
Steve Yetiv …

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Matt Simmons has published a fascinating overview of past and likely future global oil production.  He argues that the “petro-optimists” lack evidence for maintaining that “high” oil prices are an aberration.   He firmly believes oil prices are too low.

While he rues the poor and sometimes inconsistent nature of the available oil production statistics, Simmons finds that they nonetheless suggest that production of conventional crude oil peaked in May, 2005.  To satisfy the continuing growth in demand the world has relied upon demand destruction through higher prices, the addition of significant …

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Matt Simmons, the pre-eminent American energy analyst has published a fascinating overview of global production in recent years.  He maintains that production of conventional crude oil peaked in the Spring of 2005.  Crude production was 74.3 mb/d that month, as reported on a revised and updated basis by the U.S. EIA.

Total liquid fuel supplies have grown since that time (but not crude) due to additional production of significant quantities of natural gas liquids and biofuels and because of hydrocarbon processing gains, all of which Simmons says are unsustainable.  That is, all these …

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Rueters reports Saudi Arabia will achieve the following additions to capacity totaling 2.95 mb/d over the next four years:

2008: Khursaniyah - 500,000 b/d - early in year  

          Shaybah - 250,000 b/d - late in year

          Nuay yim - 100,000 b/d - late in year

          2009:  Khurais - 1.2 mb/d - mid year

           2011:   Moneefa - 900,000 - September

The Kingdom will also expand natural gas production short term and will discover an additional 178 billion barrels of oil reserves in the next 20 years.   Note that production from these and other Saudi …

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