The Saudi oil shock is here!

Midwest Voices contributing columnist: Robert Anderson

As anticipated, oil prices are moving higher in early trading this Monday. The U.S. is getting somewhat of a reprieve because every crude in the world is trading over $100/barrel expect our futures market NYMEX WTI and some of our other domestic grades. Many U.S. crude economics haven’t breeched $90 yet. Our economy is just too sluggish and midcontinent WTI delivery point is oversupplied. But don’t get smug. Our crude day of reckoning is upon us.With these high prices, it’s a strong incentive to produce more oil, right? Wrong!Check out this Bloomberg story that came out Saturday:

OPEC Oil Exports Fall 2% as Saudi Shipments Decline

http://www.bloomberg.com/news/2011-02-19/opec-s-december-oil-exports-fall-2-as-shipments-from-saudia-arabia-drop.html

Take note that these are December production figures. So its from a time frame before this Mideast turmoil began.

“OPEC’s oil exports fell 2 percent in December from a month earlier as Saudi Arabia, the world’s largest exporter, reported a decrease of 4.9 percent. Total exports by the Organization of Petroleum Exporting Countries, excluding Algeria and theUnited Arab Emirates, fell by 387,000 barrels a day to 19.4 million barrels a day, the Joint Data Initiative website, which compiles data supplied by governments in an attempt to improve transparency, showed today. Saudi Arabia’s exports fell to 6.05 million barrels a day in December from 6.36 million in November even as Saudi production rose to a two-year high of 8.37 million barrels a day, JODI said.”

December is the start of the northern hemisphere winter and the strongest seasonal demand time frame for oil. So OPEC and the Saudis were dropping output in spite of a strong economic incentive to produce more.

One of 2 things are at play:

1) Matt Simmons, energy investment banker and author of Twilight in the Desert. The Coming Saudi Oil Shock and the World Economy, was right and geologic depletion is starting to bite hard in Saudi Arabia. They can’t pump more. Five giant Saudi oilfields account for over 90% of their output. Their average age is 55 years! Their last major oilfield discovery was 1989. According to Matt Simmons, ‘No one audits Saudi claims. We’re depending on an illusion.’ So with Saudi exports down to only 6 million barrels a day the prolific Saudi oil production potential is finally being disclosed as a fraud. We read it on Wikileaks. We’re seeing it now!

2) Saudi King Abdullah has been quoted as saying they aren’t going to max out oil output for the west. They are going to save some of this precious resource for future generations. Why max out output for a fiat currency to the detriment of reservoir longevity so Americans can drive their gashog SUVs?

With either case, we have an economy disrupting calamity on our oil soaked hands. Oil prices are headed higher. This economy can’t take it. Too bad we didn’t learn anything from the 1970s oil shocks. To bad we listened to those high falutin economists, oil execs and politicians who said we couldn’t afford prudent energy policy, and the free market would take care of things. Yeah, it will. It’ll take very good care of Mideast oil producers, al-qaeda, and major oil company bonus pools.

Read more: http://voices.kansascity.com/entries/the-saudi-oil-shock-is-here/#ixzz1RQQE11u5

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About OilisNotWell

I'm a proud, happy 4th generation Kansas Citian. I've been employed in downstream petroleum and biofuels for over 30 years. After eight years as a Refinery Rep and Midcontinent Marketing Manager at Wichita-based Koch Refining, I subsequently set up shop at the KC Board of Trade just off the Country Club Plaza. Back in the old pre-internet days, I actually launched the first faxed newsletter on oil markets in the world. It was highly regarded with 350 subscribers who were oil distributors, traders and oil industry executives. Subscription cost was $760/ year. I also worked for the Hermes Group which was the first Russian company to buy a seat on a U.S. commodity exchange (NYMEX). I wrote their international business expansion plan and traveled extensively throughout Russia, Ukraine and Eastern Europe. I've also literally worked for dozens of ethanol and biodiesel firms in the U.S. I enjoy spending our winters in Uruguay and Argentina when I can swing it.

Posted on February 21, 2011, in Uncategorized. Bookmark the permalink. Leave a comment.

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