Saudi to Raise Production

I have said on many occasions that I think Saudi’s recent production decline is voluntary, and that I expected them to raise production by summer. However, judging from record-high crude inventory levels (in the U.S.), in combination with crude prices setting about where they were a year ago, it didn’t look like the market was calling for more oil. I have further stated, in debating people who are insistent that Saudi oil production has peaked, that if inventories start to drop and prices start to rise, and then Saudi doesn’t act, then I will concede that it looks like something fishy is afoot.

Alas, crude inventories have been in free-fall lately. After spending quite a bit of time well-above the upper band of the average range, the following chart from the EIA shows that they have just dropped into the band:

Prices are also up, with WTI closing above $80/bbl for the first time ever this week. This is the situation I have described in which Saudi would be called upon to respond. And they have:

Saudi Arabia Wins OPEC Increase, Defying Iran, Libya

Sept. 12 (Bloomberg) — Saudi Arabia persuaded OPEC members to increase production for the first time in a year, seeking to reduce the record price of oil, over the objections of Iran, Qatar, Venezuela, Libya and Algeria.

Saudi Arabia, the group’s biggest exporter, wanted to boost supplies after crude gained 28 percent this year to $78 a barrel, said Iraqi Oil Minister Hussain al-Shahristani. The 500,000 barrel- a-day increase will be on top of actual production, according to Kuwait’s acting oil minister, Mohammed Abdullah al-Aleem.

How much of that share will come from Saudi? According to PLATTS, most of it:

OPEC says Saudis to assume almost two-thirds of output hike

OPEC kingpin Saudi Arabia will boost its production by 327,000 b/d under the cartel’s output increase announced earlier this week, assuming 63% of the 522,000 b/d OPEC plans to put on the market from November 1, according to figures released by the group Friday.

The Saudis’ new production allocation will be 8.943 million b/d. That is up from August output of 8.616 million b/d, according to figures from secondary sources used by the cartel.

I have to admit that some of the responses from the “Saudi has peaked and is in steep decline” crowd have been entertaining. I won’t say “I told you so” just yet. They still have a ways to go before getting back to peak production. I have yet to see someone say “Well, if they raise production then I was wrong about the involuntary decline.” But if they are in steep, involuntary decline (as opposed to my position that they are trying to manage supply and demand) then surely one must wonder how they think they can increase production by over 300,000 bbl/day.

This debate over Saudi has been very ugly at times. The same people who cheer you on when you tell them that corn ethanol is not an answer, can growl menacingly when you challenge the viewpoint that Saudi has peaked. I think Dave Cohen, a former staff member at The Oil Drum, summed it up well (and captured my position as well):

Why must there always be two extreme polarized positions in this peak oil debate?

Why must the world always be black or white?

I have a scenario, reasonable in my view, that sees the world topping out at somewhere over 87 to 88 million barrels a day (all liquids) in about 4 years. There may be a dozen or more independent variables that must be fixed to get that result. Geopolitical variables, OPEC variables, price variables, inflation variables, other demand-side variables, upstream variables, substitution (for oil) variables, etc. See the problem? My reasonable scenario could be off in either direction, perhaps very badly.

But suppose my scenario is correct. That would entail that the oil supply would continue to increase for a few more years. That doesn’t negate peak oil—it still arrives. It’s just a bit later than many think. Does 4 years and 2 to 3 million barrels a day matter? Not at all. If conventional oil reserves are few hundred billion barrels higher than some people think they are, does it matter? Not at all.

When the peak oil debate takes its usual polarized form, it impoverishes us all.

I generally apologize to anyone I have insulted on this weblog. But I’ll tell you the reason why—all these extreme statements coming from both sides of the debate just make me crazy. It’s hard to stay sane. And because oil is the lifeblood of the world’s economies, it makes everybody extra crazy, including me.

I share Dave’s concern over the extremist positions. I can neither understand the mindset of someone who lashes out if you tell them the world is NOT ending tomorrow, nor of the person who ridicules when you challenge the assertion that there is oil aplenty as far as the eye can see.

11 thoughts on “Saudi to Raise Production”

  1. I made a rare visit to The Oil Drum, and made a series of comments in this thread, about peak oil prediciton.

    The jumping off point was a prediction, based on “publicaly available data” which showed global solar power output falling (“conservative scenario”) or merely flat (“optimistic scenario”) after the year 2050.

    I started then with this bit:

    I believe that is important to limit assumptions, particularly the level or depth of assumptions.

    It is a foible of the human brain that while a scenario wrapped around a probability does not change the probability, but it does change our perception of it. It makes the probability more believable.

    If we don’t want to trick ourselves like that, we have to stand back. We have to stop when we hit a solid uncertainty, and not use a ‘plausible’ assumption to break through it.

    Now, is “ultimately recoverable oil” a solid uncertainty?

    And to what degree do all of the dire scenarios in this thread break through that uncertainty by making assumptions?

    In following posts I went into more detail.

    I think the interesting thing for me as I give it a rest, is the way this related to Dave’s comments above, peak oil and doom.

    I used to think there was a huge division between peak oil and doomer philosophy. I think what I’ve come to understand now is that they share a process.

    That is, think about peak oil, think about how it could be bad, and start making assumptions about the future to chart your way into the future.

    If you let uncertainty stand, as something you can’t see beyond, you aren’t really going to click with either community.

  2. 8.943 million b/d, the new increased volume, is still below 9.55 million b/d Saudi Arabia produced in years 2004 and 2005 (9.10 and 9.55 million b/d respectively). It is possible that the oil production in Saudi Arabia has peaked.

  3. This issue of Peak Oil is not something that 99% of us need to concern ourselves with.
    WHat we need to concern ourselves with is how much is fuel going to cost to fuel our vehicles!
    The topic of how much oil is out there or is not out there is totally irrelevant for us.
    If its realistic for Crude to be at $200 a barrel and $6 for 87 Unleaded that would be more useful information.

  4. RR_
    Even some peak oilers think mbd will crest at 95 mbd, then go into decline.
    I suspect that the role of thug states is much larger than most know. The world’s exporting oil regions are under the thumb of crackpots and despots, with the sole exception of Canada, and what is left of the North Sea. And don’t say Mexico. They murder news reporters and police chiefs there, and the ruling class plunders the kingdom at every chance.
    So, we have the ugly-troll role call of Iran, Iraq, Libya, KSA, Russia and former SU states, Venezuela, Mexico, Nigeria. Even Kuwait and Qatar are only passable if you happen to be a rich Islamic male.
    There is not one nation on Thug’s Row that practices anything like property rights, contract law, free enterprise and democracy.
    Add it up: I suspect there is 5-10 mbd of potential production languishing in thug states. We would have a glut right now, save for the thugs.
    In the long run, this thuggery may actually help us. It is forced conservation. We are getting a running start on transitioning to a post-fossil economy, one in which we use less, not more, fossil oil year. And, if the loony-thugs ever coes to their senses, we will have the oil in ground yet.
    Meanwhile, we may see global Peak Demand for fossil oil this year.
    No one seems to be talking about this, although it is obvious. World demand fell after 1979 for four years, and did not recover for a full 10 years, and then only when oil was cheap again. (BP stats).
    In the last three years, world fossil oil demand has grown by 3.1, then 1.4, then 0.7 percent in 2006. You see a pattern?
    KSA rig count is up, and both Kuwait and Qatar says they want to boost outut, by 4 mbd total. Canadian tar coming online, and also the Chevron Gulf strike. North America fossil oil production should hit new all-time record in 2009-2010. (So much for Hubbert’s Peak).
    I am optimistic that Western countries can skate across some thin ice now, as their fossil oil consumption steadily declines.
    If world fossil oil consumption also steadily declines, then the whole Peak Oil doom scenario is postponed, probably until the next century.
    In the US, we would be better off in the long-run, if our gutless leaders would tax gasoline up to the $4-and-change range. The energy policies of the current administration make the Keystone Kops look like deep thinkers.
    Odograph: Don’t bother with TOD. If you only post that Kuwait and Qatar are running job ads and hiring poeple to boost production, you will get the usual insulting commentary.
    If you post that Peak Demand is a possibility, you wil get insulted.
    If you say the sun rises in the east, you will get insulted.
    I think alternative energy sources will absolutely boom for the next 20 years. RR points out the weaknesses in ethanol, and he is probably right. But solar, wind, geothermal, jatropha, PHEVs and even the new E3 ethanol plant — the future is bright. I think we will move to a more-prosperous and cleaner world in the next two decades.
    What’s not to like about commuting in a PHEV and breathing clean air?

  5. Quote:

    “The topic of how much oil is out there or is not out there is totally irrelevant for us. If its realistic for Crude to be at $200 a barrel and $6 for 87 Unleaded that would be more useful information.”

    I’m not sure if this is a bad news / good news answer:

    Yes, it is realistic. Unfortunately no one can rationally assign odds to that outcome.

    Peak Oilers (and certainly Doomers) may design a scenario that will get us to that price (or any other), but how do we ultimately judge the likelihood or probability?

    In my opinion, after a few years in this stuff, is that you don’t. You can’t.

    What you can do is hedge your bets, and your lifestyle, so that if high prices come you’ll be less-worse-off that those who did not prepare.

    In other words, a Prius is more of a energy price hedge than an Altima.

  6. Benjamin, on TOD, I got burned out on it a while back. I told them this time that it was an infrequent visit, and that I might check in again, in six months or a year.

    Bart (of Energy Bulletin fame) thinks they can work some useful scenarios. I can wish them luck, but I think really, after the scenarios are said and done, you accept the uncertainty.

  7. Odograph-
    Yes, scenarios galore, and which to choose/

    But check out fossil oil consumption. It is showing signs of going into reverse. I would say that it a very likely scenario by next year — w/o harming economic growth.

    That being the case, a lot of the doomsterism looks much less likely.

  8. If peak oil were all we had to worry about, I would agree with you. But we’re also facing climate change, serious water and soil depletion issues, fisheries collapse and other symptoms of ecosystem breakdown under stress. Any one of these problems, we could handle readily. All of them together, when they will reinforce each other in various ways, is another matter. (And then there’s the fact that the major economies of the world are all built on house-of-cards endless growth model.)

    Having all these other factors in the equation makes the timing even more uncertain, of course. I find discussing the probable timing of catastrophe to be pretty pointless. But the destination is pretty clear — we’re going to hell. It’s only the time of arrival that is uncertain.

    There are many positive signs that we’re starting to wake up, though the process is slow and the timing, as noted, is uncertain. We may already be too late — but we have no way to know that. We may yet be able to pull of the necessary transformation. But I’d hardly say that “the future looks bright”. The future looks darkly uncertain.

  9. There are plenty of equations that can’t be solved, but, yeah, I take your point.

    And all those issues are ones that any mature civilization would address proactively. Humans, being unfortunately crisis driven above all, won’t until circumstances force us to.

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