Saudi Oil Production

Saudi Oil, OPEC's Ire

2008-09-26T11:54:00.000-07:00

Saudi Oil, OPEC's Ire
Saudi King Abdullah wants to bring prices down to ensure long-term demand, but other OPEC ministers disagree
by Stanley Reed
BusinessWeek

It happens almost like clockwork. A few days before the end of every month, marketing executives from Saudi Aramco, Saudi Arabia's national oil company, ring up the likes of ExxonMobil (XOM) and Royal Dutch Shell (RDS), sounding them out about the oil they need and the price they would be willing to pay. The Saudis crunch the numbers, set a price, then call the global customers back to see how much they'd be willing to buy. By the 10th of the following month, customers—there are about 80 in all—are told how much crude they'll actually get.

It's all part of an elaborate dance that goes on continually at OPEC's biggest producer. While the cartel may set production quotas for each member, the Saudis and a few other top suppliers frequently exceed those limits in order to meet world demand. And these days, the dance looks more like a tug-of-war, as the Saudis and their allies in the organization seek to contain crude prices while Iran and others want to keep them as high as possible. Saudi relations with OPEC "depend on where prices are; when prices are too high [the Saudis] side with consumers," says Vera de Ladoucette, senior director of consultancy Cambridge Energy Research Associates in Paris.

WARY OF HIGH PRICES
The tug-of-war is a key factor in the extraordinary volatility in prices lately. After soaring to $147 per barrel this summer, crude plummeted to below $90 in early September. On Sept. 22 it jumped again to $130 as traders scrambled to cover short positions and fretted about the U.S. economy, then fell to $107 as those pressures eased.

Why wouldn't the Kingdom want to squeeze the maximum out of customers? The Saudis have long memories and recall how high prices can cut into consumption; it happened in the 1980s and it's happening again now. Any threat to oil's leading role as a source of energy is a big worry for a country that sits on reserves of some 260 billion barrels. "We are concerned about the permanent destruction of demand," says a senior Saudi official. "Those who buy hybrid vehicles are not going back to SUVs."

OPEC hardliners such as Iran and Venezuela, by contrast, have less oil in the ground and are running short on cash, so they're more interested in maximizing revenues today. Friction within OPEC has been growing because Saudi Arabia has been pumping almost 10% more than its OPEC quota of 8.9 million barrels per day. The Saudis and other Persian Gulf states believe a price of $90 per barrel is about right, while the hardliners don't want to see anything less than $100 per barrel. "The current market is not balanced; it is oversupplied," Iranian OPEC representative Mohammad Ali Khatibi told Reuters.

Talk to the Saudis privately and they often express frustration with OPEC. Saudi negotiators complain that some members come to meetings with rigid political positions that don't take the real world into consideration. And the Saudis dismiss the likes of Venezuela and Iran for talking big without having the oil to back it up. Venezuela can't produce its quota of 2.5 million barrels per day, while Iran struggles to pump its 3.8 million. Only the Saudis have significant unused capacity that they can tap to influence the markets, and they are working to add to this margin.

The conflict flared this summer. Fearing that sky-high prices could blight oil's future, King Abdullah convened a conference of energy ministers and oil executives in the port city of Jeddah on June 22. At the meeting, the Saudis unilaterally announced a 200,000-barrel-a-day hike in production, on top of an increase of 300,000 barrels daily a few weeks earlier, annoying others in the producers' club. Algerian oil minister and current OPEC President Chekib Khelil called reporters to his hotel room to say he saw no need for the Saudi move.

It's clear the Saudis and Khelil don't see eye-to-eye. At a Sept. 9 OPEC conclave in Vienna, the Saudis went along with vague language promising a cut. But after the meeting they put out the word that they didn't feel bound by it. Khelil, meanwhile, held a 4 a.m. press conference at which he said the agreement required OPEC to cut output by 520,000 barrels per day—apparently violating an agreement with the Saudis, who would bear the brunt of any cut, not to mention a specific number.

The Saudis aren't about to abandon OPEC. But when it comes to pumping what the world needs to keep going, they will generally deliver what their customers want even if it goes against other members' wishes—which likely means more conflict in the producers' club. The Saudi production increases, says Christophe de Margerie, CEO of French oil giant Total (TOT), "are a coup de knife in the OPEC system."

ASPO-USA Prediction

2008-07-20T17:17:00.003-07:00

The following was taken from an article by Dave Cohen of ASPO-USA:

Saudi Aramco Update

Business Week published Saudi Oil: A Crude Awakening on Supply? on July 10, 2008. Steve LeVine's story should leave us with no doubt about what to expect from the Kingdom in coming years. Mysteriously, this story was not Front Page News in every media outlet all over the world.

IMAGE:Businessweek Saudi Fields projections to 2013
Important

Business Week received a "detailed document obtained from a person with access to Saudi oil officials." The new information simply confirms what I already knew, but independent confirmation helps us reach firm conclusions. PFC's Roger Diwan, a respected oil analyst, vetted the Business Week document.

The data describes Saudi maximum sustainable capacity (table above). Capacity remains around 12 million barrels per day (b/d) for the next 5 years. An important shift occurs which should give us all pause.

One dramatic part of the data concerns a site called Ghawar, which has been the kingdom's workhorse field for decades. It shows the field producing 5.4 million barrels a day next year, but the volume then falling off rapidly, to 4.475 million daily barrels in 2013. "That's why Khurais is so important—to make up for that decrease," said the oil industry executive who released the data.

The long anticipated decline ("twilight") of Ghawar, the world's largest oil field, is reflected in the Saudi Light data (blue circle). If these numbers are accurate, Ghawar output declines 17% between 2009 and 2013. This works out to about 4%/year for each of the next 5 years. Production of "good oil"—not Manifa heavy sour oil (gray circle)—to offset these declines is supposed to come from Shaybah.

Though 2014 is not included in the data, one of the fields listed—Shaybah—is to have a volume increase to 1 million barrels a day that year, from 750,000 barrels a day from 2009 to 2013, according to the oil executive.

Simple arithmetic tells us that additions from Shaybah after 2013 will not offset Ghawar declines for more than one year. Business Week's source indicates that 10.4 million b/d is Saudi Arabia's maximum sustainable production level between 2009-2013. This number confirms what I wrote in The Saudis Are Blowing Smoke Again (ASPO-USA, March 12, 2008). Whether the Kingdom will actually produce at their maximum sustainable capacity is another question. See Sleepwalking Toward the Oil Precipice to learn about setting correct expectations about OPEC production in the coming decade (ASPO-USA, April 30, 2008). This passage is from Blowing Smoke—

Khurais and Manifa are very likely the last large (about 1 million b/d) increments that Saudi Arabia will be able to put on-stream—ever. A "paradigm shift" means the Kingdom is not going to knock itself out raising crude oil production to (best case) levels beyond 10.5 million b/d in the medium term out to 2012 or so, and will likely not be able to do so thereafter—Ghawar will not last forever, despite what Mr. al-Naimi or CERA think. Investment in additional capacity available after 2011 would have to be on the drawing board now, but there is no indication that Saudi Arabia has thought that far ahead.

[I should add now that Khurais and Manifa must meet capacity expectations for the Business Week scenario to come true. Also, most Manifa oil will likely be refined in Saudi Arabia, not exported. The Saudis will export refined products beyond what they use themselves.]

The Saudi peak is now in sight. Saudi Arabia is the only OPEC member that can raise production by any significant amount in the medium-term to 2013. The longstanding argument about the Saudis is over.

Saudi Arabia Pumps 9.53 mbpd in June

2008-07-06T07:27:00.000-07:00

Oil Trades Near Record as Investors Seek Alternatives to Stocks
By Christian Schmollinger
July 4 (Bloomberg)

Crude oil traded near a record in New York above $145 a barrel, set for a second week of gains, as investors purchased commodities as an alternative to flagging equities markets.

Oil has risen 19 out of 27 weeks this year as money managers bought crude futures rather than U.S. stocks, which yesterday completed the longest streak of weekly declines in four years. The International Energy Agency said July 1 that spare OPEC capacity will shrink by 2013, keeping the market ``tight''.

The Organization of Petroleum Exporting Countries increased production 1 percent in June, as Saudi Arabian output rose to a two-year high, a Bloomberg News survey showed.

OPEC pumped an average 32.52 million barrels a day in June, up 320,000 barrels from May, according to the survey of oil companies, producers and analysts. May output was revised down by 80,000 barrels a day. Output by the 12 members with quotas, all except Iraq, rose 380,000 barrels to 30.09 million barrels.

Saudi Output

Saudi production increased 280,000 barrels to an average 9.53 million barrels a day last month, the highest since March 2006. It was the biggest gain among OPEC members last month and represented 88 percent of the overall OPEC increase.

The world has as much as 5 trillion to 7 trillion barrels of oil yet to be developed, located in ``challenging'' areas or acreage closed to exploration, Saudi Arabian Oil Minister Ali al-Naimi said.

``The limits to future supplies have more to do with politics than with geology and resource availability,'' al-Naimi said in Madrid, speaking at the World Petroleum Congress, where he is receiving an industry award. Concern over supply can be overcome by allowing ``explorers to explore and find hydrocarbons where they aren't allowed,'' he said.

Saleri and Husseini

2008-06-30T10:58:00.000-07:00

Global Oil-Supply Worries Fuel Debate in Saudi Arabia
Former Officials at Odds Over 'Peak' Theory; Crude Hits High
By NEIL KING JR.
June 27, 2008
WSJ Online
http://online.wsj.com/article/SB121451556299908501.html?mod=googlenews_wsj

Sadad al-Husseini and Nansen Saleri raced up the ranks at Saudi Aramco, the world's most powerful oil company, working together for years to squeeze more crude from Saudi Arabia's massive fields. Today, the two men have staked out opposite sides of a momentous industry debate.

Mr. Husseini, Aramco's second-in-command until 2004, says the world faces a brute reality of depleting resources and ever rising prices. Mr. Saleri, until recently the company's oil-reservoir manager, insists that with enough ingenuity and investment, plenty more oil can be found.

With oil prices having doubled over the past year, political leaders, Wall Street investors, commuters, airlines and car makers are all scrambling to divine where prices will head next. The disparity of opinion between two of the most knowledgeable men in the industry shows how much fog hangs over the most basic question of all -- whether oil can be unearthed any faster than it currently is.

At the moment, Mr. Husseini's pessimistic view is clearly ascendant. Even before this year's surge in oil prices, there were gloomy industry predictions that world oil output would soon hit a ceiling. U.S. benchmark crude hit a record high on Thursday, propelled by Libyan threats of possible supply cuts, closing at $139.64 a barrel, up more than threefold since 2004. (Please see related article.)

But Mr. Saleri isn't alone in dismissing the gloom as misplaced. Optimists, from Exxon Mobil Corp. to the U.S. Energy Department, argue that high prices propel companies to innovate and invest more. As supplies rebound, prices will fall from today's levels.

Saudi Arabia itself, producer of 12% of the world's oil, has vacillated for years over whether to try to extract oil faster than it already is. Last weekend, urged on by Saudi King Abdullah, it appeared to move into Mr. Saleri's camp. Fearful that supply jitters were damaging the world economy, the kingdom said it was ready to invest tens of billions of dollars to boost its capacity to unprecedented levels -- to 15 million barrels a day over the next decade, from just over 11 million now.

Opinions within the region on the health of the Persian Gulf's remaining petroleum riches vary more widely than many realize. Messrs. Husseini and Saleri disagree over whether the new Saudi production target is either feasible or wise -- echoing a debate that has swirled behind the scenes at Aramco for years.

That the two men worked side by side at the company that controls one-quarter of the world's proven oil reserves makes their divergent outlooks all the more striking.

Mr. Husseini, now an independent consultant, has jetted around the world spreading his views, including recently over dinner with George Soros and a clutch of other top financiers. Mr. Saleri has lectured, written opinion pieces and buttonholed top oil officials from Latin America to Kuwait.

Mr. Husseini, 61 years old, lives across the street from the Saudi oil minister, Ali Naimi, in a leafy neighborhood of Dhahran, the Aramco company town on Saudi Arabia's east coast. The suave but sharply opinionated petroleum geologist says most of the big oil repositories have been found, and no amount of gadgetry will restore bubbly youth to aging fields from Indonesia to the Gulf of Mexico. War, politics and soaring costs, he adds, are slowing development in many of the most promising regions.

"The fact is, we have to work harder and harder to get the oil we need," he says. Those who contend otherwise, he insists, "claim to have some magic potion, like voodoo, that doesn't exist."

Mr. Saleri, who is a year younger, shrugs off his former boss's pessimism. A self-described "technology nut" who resigned as Aramco's top reservoir manager last fall to set up his own consulting shop in Houston, Mr. Saleri has become a vociferous opponent of the "peak oil" view, which holds that global oil production is about to enter a permanent slump due to shrinking resources and limited investment.

"We have consumed only one trillion of the 14 or 15 trillion barrels of oil that are out there," says Mr. Saleri, citing a personal estimate for all types of oil that is far higher than most. "For the next 40, 50 or 60 years, I see no problem at all."

Aramco Outsiders

Both men started their careers at Aramco as outsiders. Mr. Husseini's family moved to Saudi Arabia from Syria in 1961, when he was 14. The royal family had invited his father to help establish the Saudi National Guard under the command of Prince Abdullah, who is now the Saudi king. Prince Abdullah became a guardian of sorts to the six Husseini children after their father died in a car wreck in 1968.

After graduating from Brown University, Mr. Husseini took a job with Aramco, which was then in American hands. By 1980, when the Saudi government took over the company, the young geologist was rising fast. "Sadad was one of the best engineers I worked with anywhere in the world," says Edward Price, Aramco's president at the time.

Mr. Saleri's route to Aramco was more circuitous. Born to a prominent Armenian family in Istanbul, he studied in the U.S., then joined Standard Oil of California, now Chevron Corp. His job was to take all the known data on an oil field -- well-flow rates, geological core samples, seismic charts -- and predict how the reservoir would behave under different production scenarios. "I basically sat in a dark room and crunched data," he says.

In 1978, Chevron sent him to Saudi Arabia for a seven-year stint as a consultant to Aramco, where he met Mr. Husseini. The oil world was about to experience a price spike that began with the Iranian revolution. For three years, starting in 1979, Aramco pushed its oil production to nearly 10 million barrels a day -- still its all-time record.

What happened next bears directly on Mr. Husseini's current view. The effort to draw out so much more oil, he says, nearly crippled the kingdom's mightiest fields. The pressure in many of them plummeted. Water seeped into oil zones.

"They were going hellbent for leather to take care of world demand," he says. "And then we spent the next seven or eight years cleaning up the mess."

After Aramco began cutting back on output in 1981, Mr. Husseini worked to mend its huge reservoirs -- and to understand them better. In 1992, he persuaded Mr. Saleri to join Aramco full-time to help create computer-simulation models of all Saudi oil fields. The two men worked side by side on some of Aramco's most ambitious projects, including the development of a vast oil field called Shaybah, deep in the country's remote and forbidding Empty Quarter.

It was at Shaybah that Mr. Saleri had what he calls his "big eureka moment." Aramco had developed the field using hundreds of wells that went down, then snaked horizontally. But when Shaybah came on stream in 1998, its production fell short of the planned 500,000 barrels a day.

Mr. Saleri led an aggressive campaign to drill a new batch of extraordinarily long wells, many with multiple branches shooting off in all directions. Shaybah's production shot up. "That was a true engineering breakthrough," says Rick Chimblo, Aramco's chief geophysicist at the time.

That success helps explain why Mr. Saleri is now such an optimist. "Shaybah brought me fame," says Mr. Saleri. "And it made me realize how the old rules no longer applied."

Mr. Husseini applauded Mr. Saleri's accomplishment. But soon, the two executives were disagreeing on key forecasts. In 2001, Aramco was looking to open the kingdom's vast Empty Quarter to foreign natural-gas exploration. Mr. Husseini estimated that the area contained at most about 30 trillion cubic feet of gas -- not large by Saudi standards. Mr. Saleri predicted the area would yield 10 times that much. So far, drilling in the area has found no commercial quantities of gas.

At around that time, rising oil demand revived discussion within Aramco over when and how to boost the kingdom's production capacity, then just over 10 million barrels a day. Then, as now, Messrs. Husseini and Saleri had sharply different views on the issue.

Recalling his experience in Shaybah, Mr. Saleri argued that the kingdom could hit 15 million barrels a day and hold that level for decades. Mr. Husseini, remembering the missteps of the late 1970s, pushed for what he calls "a realistic, gradual approach." Fifteen million barrels a day would be sustainable only briefly, he said, and then only with huge effort and expense.

"My view is that you produce a field for the longest period of time at the least capital cost," says Mr. Husseini. "Nansen comes from the international-company school of thought, which is to get the maximum amount of oil you can in the shortest time."

International Pressure

In recent months, Saudi leaders appeared to have adopted Mr. Husseini's view. Local reports quoted King Abdullah saying that some new discoveries should stay in the ground. "With grace from God, our children need it," he said. Mr. Naimi, the oil minister, announced that Aramco saw no need to go beyond 12.5 million barrels a day next year.

But on Sunday, under heavy international pressure, the kingdom revived its earlier promise to push for the far higher target of 15 million barrels a day.

Mr. Husseini, once viewed as a shoo-in to be Aramco's top executive, left Aramco in March 2004 after clashing with other senior managers over production targets and other matters, others at the company say. Mr. Husseini declines to explain why he left, saying only: "I'd done all I could to support all our collective objectives without having to do anything I would feel embarrassed about."

Months later, he issued his first gloomy take on the world's oil. Forces ranging from resource nationalism to depletion rates in the biggest fields, he wrote in Oil and Gas Journal, meant that oil prices will "continue to escalate through the end of the decade."

By fall he was warning that consumers shouldn't expect any big Saudi production increases over the next decade. His statements earned him several sharp rebukes from the Saudi Oil Ministry, though Mr. Husseini insists that his relations with the country's top oil officials remain warm.

Mr. Husseini says he often bumps into Mr. Naimi, the Saudi oil minister, in their Dhahran neighborhood or at parties. "We are great friends. I see him all the time," he says. Mr. Naimi declined to comment.

By last fall, anxiety was growing within the industry and on Wall Street over whether long-term supplies could keep pace with the rising world demand. Mr. Husseini stoked those fears at a London conference in October. The major oil-producing nations were inflating their oil reserves by as much as 300 billion barrels, about one-quarter of the world's proven reserves, he said, while the giant fields of the Persian Gulf region are 41% depleted.

Mr. Saleri, who left Aramco in September, doesn't share those worries. He has hired a half dozen former Aramco and Chevron officials and opened a business in Houston. His company, Quantum Reservoir Impact, says it has the reservoir-modeling and management know-how to revive declining oil fields. Mr. Saleri is now shopping his services to big national oil companies in Latin America and the Middle East, though he has yet to sign any contracts.

Peak-Oil Dispute

In a Wall Street Journal opinion piece in March, he dismissed the peak-oil theory. "The world has plenty of oil," he wrote.

Three weeks later, Mr. Husseini flew to New York at the invitation of a clutch of high-powered financiers, including Mr. Soros, Leucadia National Corp. Chairman Ian M. Cumming and Aubrey McClendon, the chief executive of natural-gas company Chesapeake Energy Corp.

The group of about 20 met for dinner in the 21 Club's wine cellar. Mr. Husseini declines to comment on the session. One guest says he spoke mainly about the geopolitical thunderclouds hovering over the oil market, especially the U.S. and Israeli standoff with Iran.

In a longer presentation the following morning, he argued that the world will have to work hard just to keep its oil production where it is. Conservation, not new oil discoveries, will be "the primary source of overall energy availability" going forward, he said.

He delivered the same message to oil magnate T. Boone Pickens over lunch in Chicago. "It was just two oil guys talking," says Mr. Pickens, adding that Mr. Husseini's views dovetail with his own.

Messrs. Husseini and Saleri remain collegial, though they haven't spoken for months. Both see the other's views as largely a matter of personal disposition.

"Sadad by nature sees the dark clouds overhead," says Mr. Saleri. "He's a pessimist."

His former boss laughs at the description. "The problem with Nansen," he says, "is that he loves his theories, even when they run up against reality."

Write to Neil King Jr. at neil.king@wsj.com

Corrections & Amplifications

Edward Price was formerly senior vice president for exploration at Saudi Aramco. This article incorrectly said he was formerly the company's president.

Khurais

2008-06-30T02:51:00.000-07:00

Giant Saudi field is key to boosting oil output
Remote Khurais project should be supplying crude by June of next year
The Associated Press
June. 29, 2008

This massive oil field surrounded by the desolate sands of Saudi Arabia's vast eastern desert feels like the middle of nowhere.

But what happens over the next year at Khurais, one of Saudi Arabia's last undeveloped giant oil fields, could hold the key to what drivers will pay at the pump for years to come.

Under way at Khurais and two other smaller fields nearby is what Saudi Arabia calls the single largest expansion of oil production capacity in history.

With consumers howling over record fuel prices and the United States pushing Saudi Arabia to produce more oil, this patch of sand 100 miles west of the Saudi capital of Riyadh has become one of the most important places in the world economy.

Saudi Arabia's state-owned oil company, Aramco, is spending $10 billion to build the infrastructure to pump 1.2 million barrels of oil per day by next June from the Khurais field and its two smaller neighbors. That alone would be more than the total individual production of OPEC members Qatar, Indonesia and Ecuador.

The project forms the centerpiece of the Saudi plan to increase the total amount of oil it can produce to 12.5 million barrels per day by the end of 2009 — up from a little more than 11 million barrels per day now.

Consuming nations have pushed Saudi Arabia to boost production capacity even further and also want the world's top oil exporter to begin pumping more crude immediately to bring down record oil prices hovering near $140 a barrel. They say oil production has not kept up with increased demand, especially from China, India and the Middle East.

Saudi Arabia plans to produce 9.7 million barrels of oil per day, or 11 percent of the world's total, in July. It is the only nation with significant excess capacity that it could put on the market quickly.

But the kingdom has resisted calls to increase production further, saying financial speculators and the falling dollar are to blame for high oil prices, not a shortage of supply.

These disagreements came to a head June 22 at a rare meeting of oil producing and consuming nations hosted by Saudi Arabia. In the end, Saudi Arabia said it could increase oil production capacity to 15 million barrels per day if needed in future years. But it gave no indication that step, or an immediate increase in output, was necessary or planned.

The political tussle over output masks the challenge Saudi Arabia faces in boosting production capacity by developing giant fields like Khurais.

"That is what people don't appreciate," said Manouchehr Takin, an oil expert at the London-based Centre for Global Energy Studies. "These are major projects, and people don't realize they aren't that easy."

The Saudis estimate Khurais and the nearby smaller Abu Jifan and Mazalij fields hold a total of 27 billion barrels of oil encased in solid rock 5,000 feet below the baking desert.

Saudi Arabia is no stranger to developing giant oil fields. Its massive Ghawar field, with an estimated 70 billion barrels of remaining reserves, is the world's largest.

But oil experts say Khurais, which was discovered in 1957, is geologically more difficult to tap.

Aramco is using hundreds of mostly South Asian workers to build a massive processing facility at the field. More than 150 wells will pump crude to the surface, where water and gas will be separated out. The oil then will be funneled to the country's east-west pipeline for delivery to ships in the Red Sea.

Workers are also building a huge sea-water injection system to pump more than 2 million barrels of water per day from the Gulf into 120 wells. That will maintain the necessary pressure underground to push the oil to the surface.

Disputes over Saudi's decisions aside, "when you talk about the fields and the engineers and so on, I think you have to respect their technical ability," Takin said.

With its twisting maze of metal, the half-finished facility rises out of the desert like a massive space station. Workers wear gloves and wrap bandanas across their faces to hide from the searing sun as they work 10-hour shifts in temperatures well above 100 degrees.

Aramco officials say that in addition to geological challenges, they also face difficulty finding enough qualified workers and equipment. The project will use 145,000 tons of steel — almost enough to build two Golden Gate bridges.

"We are trying to do it in a world market where contractors are in high demand," said Muhammed al-Rubeh, head of Aramco's project department.

When completed, the processing facility also will be protected by two layers of fences, crash barriers, security cameras and government forces, Aramco says. Al-Qaida has called for attacks against Saudi Arabia's oil facilities to disrupt the flow of crude.

Aramco officials insist that despite the tight construction market, the Khurais project will be ready to produce 1.2 million barrels per day by next June.

But equipment and labor shortages have delayed production at another field, Khursaniyah, which was originally scheduled to begin pumping 500,000 barrels per day at the end of 2007. Aramco officials now say Khursaniyah will come online in August.

Also in the works is the development of the Manifa field, which sits offshore in the Gulf and is Saudi Arabia's only other giant oil field still untapped.

If all goes as scheduled, Aramco forecasts more than 50 billion barrels of fresh reserves from the giant fields by 2011. That amount alone would give Saudi Arabia the ninth largest oil reserves in the world, not even counting its existing reserves.

Outside analysts estimate the kingdom's total current reserves at about 260 billion barrels. But Saudi Arabia refuses to provide detailed data to allow independent verification.

Amin Nasser, senior vice president for production and exploration at Aramco, acknowledges the company sometimes faces criticism for that secrecy. "We have a tradition of letting our actions and accomplishments speak for themselves," he said.

URL: http://www.msnbc.msn.com/id/25443913/

Mixed Signals

2008-05-18T20:49:00.000-07:00

Saudis See No Reason to Raise Oil Production Now
May 16, 2008
Rigzone

Saudi Arabian leaders made clear Friday they see no reason to increase oil production until their customers demand it, apparently rebuffing President Bush amid soaring U.S. gasoline prices.

During Bush's his second personal appeal this year to King Abdullah, Saudi officials stuck to their position that they are already meeting demand, the president's national security adviser told reporters.

"What they're saying to us is ... Saudi Arabia does not have customers that are making requests for oil that they are not able to satisfy," Stephen Hadley said on a day when oil prices topped $127 a barrel, a record high.

The Saudi government indicated that it is willing to put on the market whatever oil is necessary to meet the demand of its customers, Hadley said.

But even then, he said, Saudi leaders say increased production would not dramatically reduce pump prices in the United States.

The Saudis are investing in ways to increase oil production over time. Officials told Bush they are doing "everything they can do" for now to address a complicated market.

Hadley said the Bush administration will take the explanation back to its own experts and "see it if conforms."

When Bush and Abdullah met in the kingdom in mid-January, the president also sought more Saudi output but got a chilly response to that plea. Saudi Arabia said it would increase production only when the market justified it and that production levels appeared normal.

Bush acknowledges that raising output is difficult because the demand for oil -- particularly from China and India -- is stretching supplies. Also, economists say prices are being driven up by increased demand, not slowed production.

...

Saudi Hikes Output by 300,000 bpd in May
May 16, 2008
Rigzone

Contrary to earlier reports, Saudi Arabia has increased its oil production by 300,000 barrels per day in response to orders from customers, mostly from the United States, and will pump 9.45 million bpd in June, Oil Minister Ali al-Nuaimi said on Friday.

"Every month, we receive (orders) from our customers worldwide. On May 10 we increased our response to our customers by 300,000 barrels because they asked for it," Nuaimi told reporters during a visit by U.S. President George W. Bush to Saudi Arabia.

He said additional demand came from about 50 customers, mostly U.S. clients, "and we responded to it on May 10."

"Our production for June will be 9.45 million barrels per day," he added.

Al-Naimi

2008-04-20T10:35:00.000-07:00

No Need for Further Saudi Oil Capacity Expansion — Al-Naimi
Reuters
ROME, 20 April 2008

Top oil exporter Saudi Arabia has no plans to embark on further capacity expansion as long-term oil demand forecasts fall and alternative fuel supplies rise, the Saudi oil minister told industry newsletter Petroleum Argus.

The holder of the world’s largest oil reserves sees no need to go beyond its 2009 capacity target of 12.5 million barrels per day “at least up to 2020,” Minister of Petroleum and Mineral Resources Ali Al-Naimi said.

Long-term future energy demand forecasts have fallen sharply, he said in the interview given to the weekly on April 11, casting doubt on the need for more Saudi oil.

Demand forecasts have fallen as low as 106 million bpd in 2030, down from previous estimates as high as 130 million bpd. The world currently consumes around 86 million bpd.

“The projection of demand is on the decrease,” Al-Naimi said. “The projection of alternative fuels is on the rise. Therefore, it behoves us to pause, instead of expending unnecessary funds on expanding capacity that will probably not be needed,” he said. “We will watch what happens in the coming years. It is a pragmatic position.”

Saudi Arabia has spent tens of billions of dollars on projects to meet growing world demand and maintain spare production capacity of 1.5 million-2.0 million bpd to deal with any unexpected outages in global supply. The Kingdom has previously said it could take output capacity of 15 million bpd.

The Kingdom is the only oil producer with substantial spare capacity that can be brought online quickly.

“We are idling at around 9 million bpd and we will reach capacity of 12.5 million bpd by 2009,” Al-Naimi said. “That is substantial spare capacity. As far as I know, all the latest projections, at least up to 2020, do not require anything higher than that.”

A Saudi oil official said earlier this month that output stood at around 9 million bpd. Current capacity is around 11.3 million bpd.

Al-Naimi said the oil market did not need more oil and crude inventories were “fairly high”.

“Today there is no reason to jump up and down and say ‘we will supply more crude’ — because that request from consuming countries is probably politically driven rather than a fundamental requirement,” he said.

British Prime Minister Gordon Brown this week said he wanted to see collective action to persuade the Organization of the Petroleum Exporting Countries (OPEC) to boost output and bring down prices. US President George Bush has also repeatedly urged OPEC to supply more oil.

But boosting Saudi oil output would destabilize the market, Al-Naimi said.

“We would be flooding the market,” he said. “The market cannot handle it, there is no demand.”

The price of oil was divorced from oil market fundamentals, Al-Naimi said. Oil has become a hedge for investors, like gold, against the falling value of currencies, he added.

“That is the reason for the pressure on the price of oil,” he said.

US crude hit a record of $117 a barrel on Friday.

Rising costs for materials, construction and oil service contracting has pushed up the cost of adding new oil output capacity in Saudi Arabia to between $5000 and $8000 per barrel, Al-Naimi said.

Capacity additions at the Shaybah oilfield, where state oil firm Saudi Aramco is adding 250,000 bpd to current capacity, cost around $5000 per barrel he said. At the giant Ghawar field, additional capacity costs were around $2000 per barrel.

Costs for new refineries had almost doubled from initial estimates, Al-Naimi said, although he did no refer to any specific plants. The cost of new joint venture refineries between Aramco and France’s Total and US major ConocoPhillips has risen above $10 billion from initial estimates of $6 billion, industry sources have said.

The highest depletion rates at Saudi oilfields were around 2-3 percent per year, Al-Naimi said. Reservoir management and drilling prevented higher decline, he added. Decline rates at existing wells were around 6-8 percent per year.

The only capacity addition that Saudi Arabia has detailed beyond 2009 is the 900,000 bpd Manifa field, which is to replace decline at other fields, Al-Naimi said.

“Manifa is really a ‘maintain potential’ facility, Al-Naimi said. “It does not add to our spare capacity.”

Saudi King says keeping some oil finds for future

2008-04-14T12:16:00.000-07:00

Saudi King says keeping some oil finds for future
04.13.08
Reuters

Saudi Arabia's King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world's top exporter for future generations, the official Saudi Press Agency (SPA) reported.

"I keep no secret from you that when there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'," King Abdullah said in remarks made late on Saturday, SPA said.

The U.S. President George W. Bush in January urged the Saudi king to help tame soaring prices by encouraging OPEC to pump more oil. On separate trips to Saudi Arabia this year, the U.S. energy secretary also asked for more oil, while the vice president discussed high prices with the king.

The kingdom has spent billions on building over 2 million bpd of spare crude capacity and is the only country in the world able to bring online large volumes of crude supply quickly to deal with unexpected supply shortages.

OPEC held production steady at meetings in February and March despite calls for more oil from the U.S. and other consumers. OPEC officials blame the high price on factors beyond the group's control such as the weak dollar, investment flows into commodities and speculation. Saudi Oil Minister Ali al-Naimi said last week that global oil markets were well supplied and there was no need to put more oil on the market, despite prices hitting a record of over $112 a barrel last week.

Saudi Arabia has trimmed its output to around 9 million bpd to reflect lower customer demand, a Saudi oil source said on Friday. The kingdom had in previous months pumped around 9.2 million bpd. Crude demand traditionally dips at this time of year after the end of winter as refiners carry out maintenance and prepare to meet summer demand.

Saudi production capacity stands at around 11.3 million bpd, and is scheduled to rise to 12. 5 million bpd next year. (Editing by Will Waterman)

Saudi Oil Minister Says “Not Enough Buyers”

2008-04-10T23:59:00.000-07:00

Saudi Oil Minister Says “Not Enough Buyers” to Increase Production
By Tom Waterman
April 10, 2008
Oilintel.com

Paris, France - On the sidelines of an international conference in Paris this morning, it was widely reported that Saudi Arabia's Oil Minister Ali Al-Naimi said "there were not enough buyers of oil to justify an increase in oil production, despite high prices."

This is a direct and accurate statement from the Saudi oil minister, but his next comment is even more telling. He said "that if more buyers emerged, then 'we' would sell. But there were no such buyers."

If you have followed OPEC for the past 30 years as we have, you would understand his logic. Frankly, OPEC will sell all the oil it can, if there are willing buyers. The fact is, Al-Naimi should have told reporters what he told VP Dick Cheney recently. He informed Cheney that they have no room to put any increased output. There are not enough buyers for the oil produced by OPEC and non-OPEC producers, much less if more oil was produced.

Other OPEC nations continue to produce, but they won't admit it. Reports that OPEC produced 100,000 bpd less oil in March than in February is a smokescreen. They certainly produced the same or more, they are just storing the excess until the market might need it, which they hope will be later in April or in May as refineries worldwide start gearing up for the summer driving season.

That's the hope. The reality is this self-defeating marketplace is overflowing with crude oil and even in normal times it might take until the end of June to right itself. With today's dynamics, it might not be resolved during the driving season at all.

That's why the Saudis refuse to pump more oil. What the market will not admit is that the reason OPEC did not officially cut production in the second quarter was due to high prices, and how bad the PR would be.

In our weekly editorial meeting, we could not come up with a time when oil fundamentals were as weak as they are today. And we're talking many decades of experience. Oil stored on vessels, all land-based storage facilities bulging, a series of geo-political factors that provide artificial support without ever removing a barrel of oil from the market.

Perhaps it will take the collapse of the U.S. economy, which is on the horizon unless energy and food prices fall, for the U.S. government to radically change and enhance the regulations that govern commodities and speculation. Increasing the cost of speculation will not solve the problem, only forcing out smaller traders. The large financial institutions that have the biggest stake, and are taking billions in profits can afford any increases. The answer is speculative limits on both the exchanges and the companies that manage these speculative funds. They must find a way to limit how much influence these firms have on baseless prices increases for profit.

Commodity markets are all tremendously affected. Grain tightness does not justify the price of corn, wheat, soybeans or other crops to double, triple and quadruple in price. The oil markets are fundamentally weak, yet prices rise. These financial institutions sell the dollar based on perceptions the Fed may keep lowering interest rates, and buy oil as a hedge. The result? A weaker dollar and justification for higher oil prices. If it were not such a dire situation, it would be comical.
Three years ago, a statement similar to the one uttered by the Saudi oil minister this morning would have sent crude oil crashing, by perhaps $1.50 per barrel, which based on the changes in perception and volatility, would mean about $6.00 per barrel today.

These speculative firms keep the cycle of greed alive and growing while at the same time, sending the U.S. economy into a death spiral. I wish I were exaggerating, but I'm not. I just won't use the "D" word just yet. We were using the "R" word in October, 2007.

OPEC Production Cut?

2008-04-01T11:26:00.000-07:00

Oil Falls, When Will We Hear From OPEC?
April 1st, 2008
By John Troland, Tom Waterman

Houston, TX - May Nymex prices have fallen this morning, continuing the long liquidation that began Friday.

The Iraqi hype ended on Monday when Iran told Shiite antagonists to cool it, as a spread of that violence would certainly have brought the U.S. into a more involved role.

On April Fools Day, it's ironic that the great lie of the past two years, that oil is worth $100 and more, may finally be giving way. But the day is young and we can't help but wonder which OPEC country will step up and announce that the cartel needs to reduce production in the second quarter, just one day into that quarter.

Crude oil has been at glut levels for more than two months and if prices tumble to the mid-$90s, there will be an immediate reaction from the hawks within OPEC. The early money favorite is Hugo Chavez, with Iran running a close second. We need to include Algeria in this equation, despite the fact that it really doesn't want to cut a single barrel of production. Then again, neither do Iran or Venezuela. No, all OPEC countries will look to Saudi Arabia to provide the necessary restraint.

It's hard to calculate just how much production needs to be scaled back. We had once predicted that OPEC would announce a 500,000 bpd cut for the second quarter, but based on current demand trends in the U.S., Europe, and yes Asia, plus some additional non-OPEC supply in the near term horizon, the cut to refuel this market might need to be 750,000 to 1 million bpd. Anything short of that level probably won't avert what seems destined to be a steady decline in oil prices.

So where did the speculators go? Apparently, with the announcement by the Fed that more oversight in all financial markets, including commodities, is needed helped induce long liquidation in virtually all commodities on Monday, although natural gas was a notable exception. Today natural gas joins the liquidation party.

Or, the U.S. dollar improved, probably on the government's announcement Monday, which hastened an exit from long positions. In either case, if speculators are moving away from commodities, fearing that the government may be catching on to the scam they have engineered over the past two years, there is a chance that the fundamentals of supply and demand might have to be considered once again, after a long period of total disregard.

OPEC Oil Supply Rises 100,000 bpd in March

2008-03-28T11:25:00.000-07:00

OPEC Oil Supply Rises in March, PetroLogistics Says
By Grant Smith
March 28 (Bloomberg)

OPEC's crude-oil supply has probably increased by 100,000 barrels a day, or 0.3 percent, in March, according to preliminary estimates from PetroLogistics Ltd.

The 13 members of the Organization of Petroleum Exporting Countries have supplied 32.9 million barrels a day this month, up from 32.8 million a day in February, data from the Geneva-based tanker-tracking service showed.

Iranian output accounted for most of the gain, rising to 4.05 million barrels a day from 3.92 million a day, the consultant said. Iran is OPEC's second-largest producer.

``Iran had rather a difficult time in February due to weather-related loading delays, and this month they're bringing it back up again,'' Conrad Gerber, founder of PetroLogistics, said in a telephone interview from Geneva.

Iraqi exports from the southern port of Basra have dropped by about 70,000 barrels a day this month to 1.65 million barrels a day because of interruptions including an explosion on the Zubair-1 pipeline yesterday, Gerber said. The two main pipelines serving the Basra oil terminal were unaffected by the blast, an Iraqi official said.

PetroLogistics estimates the quantity of crude supplied to the market, including to consumers in the producing countries themselves, rather than well-head output.

OPEC, the producer of more than 40 percent of the world's oil, has no plans to increase output even if ministers meet informally next month, group President Chakib Khelil said, according to Algeria's state-run news service APS.

Analysts and banks including Societe Generale SA and London's Centre for Global Energy Studies said before OPEC's last gathering on March 5 that the group would probably make unofficial production cuts in the coming quarter to avert a supply glut.

Saudi Arabia Output Above OPEC Quota

2008-03-05T09:45:00.000-08:00

Saudi Arabia Output Above OPEC Quota, Al-Naimi Says
By Maher Chmaytelli and Alexander Kwiatkowski
March 5
(Bloomberg)

Saudi Arabia, the world's biggest oil exporter, is producing above its OPEC quota because the market needs more crude, Oil Minister Ali al-Naimi said.

Saudi Arabia is producing 9.2 million barrels a day of oil, al-Naimi said today in an interview in Vienna, where the Organization of Petroleum Exporting Countries is meeting to decide production targets. Bloomberg calculates that Saudi Arabia has a production target of about 8.9 million barrels.

``That's what the market needs,'' he said.

OPEC will study the ``fundamentals'' when deciding what to do with production and customers aren't indicating that demand for oil is weakening, he said.

``Our aim is to keep supply and demand balanced with stocks standing at 5-year average,'' al-Naimi said. The Saudi minister earlier told al-Hayat newspaper that a change to production isn't justified because supply and demand are stable.

Al-Naimi said he wouldn't be ``surprised'' if OPEC held an emergency meeting before it meets again in September. ``The aim would be to ensure market balance,'' he said.

OPEC will leave production targets unchanged at today's meeting, according to 10 of the group's 13 members. Representatives including ministers from Iran, Venezuela and Algeria have told Bloomberg that the Organization of Petroleum Exporting Countries will hold output steady.

The Construction Site Called Saudi Arabia

2008-01-20T11:41:00.000-08:00

The Construction Site Called Saudi Arabia
By JAD MOUAWAD
January 20, 2008
The New York Times

RABIGH, Saudi Arabia — The alarm bell sounded the end of the lunch break here one November afternoon, and suddenly thousands of workers — on foot, on bicycles and in buses — streamed in, seemingly from out of nowhere, and jolted this huge construction site to life.

Amid a forest of cranes, towers and beams rising from the desert, more than 38,000 workers from China, India, Turkey and beyond have been toiling for two years in unforgiving conditions — often in temperatures exceeding 100 degrees — to complete one of the world’s largest petrochemical plants in record time.

By the end of the year, this massive city of steel at the edge of the Red Sea will take its place as a cog of globalization: plastics produced here will be used to make televisions in Japan, cellphones in China and thousands of other products to be sold in the United States and Europe. Construction costs at the plant, which spreads over eight square miles, have doubled to $10 billion because of shortages in materials and labor. The amount of steel being used is 10 times the weight of the Eiffel Tower.

“I’ve worked on many big things in my life, but I’ve never worked on anything this big,” an American project manager mused during a bus tour of the project, called Petro Rabigh, a joint venture of the state-run oil company Saudi Aramco and Sumitomo Chemical of Japan.

Size isn’t the only consideration. The project is Saudi Arabia’s boldest bet yet that this oil-rich kingdom can transform itself into an industrial powerhouse. The plant is part of a $500 billion investment program to build new cities, create millions of jobs and diversify the economy away from petroleum exports over the next two decades.

“The Saudi economy was in idle mode for 20 years,” said John Sfakianakis, the chief economist at SABB, formerly known as the Saudi British Bank, who is based in Riyadh, the Saudi capital. “Today, the feeling here is, ‘We’ve won the lottery; let’s not waste it.’ ”

The kingdom’s lofty economic goals would have been unthinkable without the surge in energy prices that has filled the coffers of oil producers. Oil prices have quadrupled since 2002 and reached $100 a barrel in New York this month.

Persian Gulf countries earned $1.5 trillion in oil revenue from 2002 to 2006, twice as much as in the previous five-year period, according to the Institute of International Finance, a global association of banks that is based in Washington. As the top exporter, Saudi Arabia has been the main beneficiary.

Despite all the recent headlines about Middle East investors bailing out troubled American banks like Citigroup, a growing share of today’s petrodollars are staying at home to finance megaprojects like Petro Rabigh, analysts say. That money is financing the biggest economic boom in a generation, helping to build not only the high-rises of Dubai, where the world’s tallest tower is going up, but also telecommunications networks, roads and universities throughout the Middle East.

Abu Dhabi is planning to spend close to $1 billion for a new museum with the help of the Louvre, in Paris. Dubai’s latest grandiose idea is to build a small-scale replica of the French city of Lyon, complete with residential housing, a museum, a culinary school and a soccer club.

In Saudi Arabia, Riyadh looks like a boom town: sprawling over 40 miles, it is teeming with shopping malls, electronics stores and luxury boutiques. But while times are good today, many Saudis realize that their country is locked in a race against time to create industries that produce more than just oil in order to keep a young and growing population employed. The kingdom, which has a population of 24.5 million, including nearly 7 million foreigners, has what one analyst called a “human time bomb.” About 40 percent of Saudis are under 15, and because the country has one of the world’s highest birth rates, the population is expected to reach nearly 40 million by 2025.

“It has been a social, and therefore a political, imperative of the Saudi government to develop the economy and to create employment opportunities,” said Timothy S. Gray, the chief executive of HSBC Saudi Arabia.

That could well mean that higher oil prices are here to stay. One paradox of modern-day Saudi Arabia is that while it seeks to reduce the importance of petroleum to its economy, it needs those exports more than ever.

TO be sure, the region’s economies are too small to absorb all the oil riches on their own. Too much money is chasing too few assets, analysts say, forcing oil producers to invest some of their revenue abroad and diversify their holdings, either through opaque state-owned investment funds or through direct private investments.

Last year, for example, a fund controlled by the government of Abu Dhabi bought a stake in Citigroup for $7.5 billion, while another run by Dubai’s ruler bought a large share in Sony, the Japanese consumer electronics giant. Sabic, a major Saudi petrochemical company, bought the plastics division of General Electric for $11.6 billion, and the Kuwait Petroleum Corporation bought half of Dow Chemical’s commodity-plastics unit for $9.5 billion.

In recent weeks, other big banks plagued by losses from the mortgage crisis, like Merrill Lynch and Morgan Stanley, have raised tens of billions of dollars from a variety of Middle Eastern and Asian funds, including ones from Kuwait or Saudi Arabia.

According to data compiled by Bloomberg News, overseas investments by Persian Gulf countries reached a record $75 billion in 2007. Arms deals, a time-worn way of recycling petrodollars, remain popular in the region; the United States is pushing for a $20 billion weapons sale to Saudi Arabia, for example. But while oil-rich states are still buying American Treasury bonds or military hardware from the West, analysts say the more significant trend is for a growing share of their investments to be pumped into local projects.

“The vision is to turn the kingdom into a major industrial power by 2020,” said Jean-François Seznec, a professor at Georgetown University who is a specialist in industrial policies in the Persian Gulf. “A billion dollars here and a billion there, and soon you’re talking about real money.”

Projects like Petro Rabigh, Mr. Seznec said, will allow Saudi Arabia to become one of the top three chemical producers in the world within a few years. Unlike Kuwait or Abu Dhabi, Saudi Arabia does not have a sovereign fund responsible for investing the country’s petroleum riches.

Ali Al-Naimi, the kingdom’s energy minister and one of the grand architects of Saudi industrial policy, summed up the country’s goals at the dedication ceremony for Petro Rabigh in 2006.

“I would like to highlight the fact that the Petro Rabigh project is part of a bigger picture,” Mr. Naimi said at the time. “This strategy includes expanding the base of the Saudi economy, diversifying national income sources, attracting international investments and reaping the direct and indirect benefits that these types of projects will accrue to the Saudi citizen.”

The trend to modernize and develop the economy is not entirely new, of course. Saudi Arabia has been trying to diversify itself for over two decades. It famously tried to make the desert bloom in the 1970s and ’80s by investing heavily in water desalinization plants and growing crops.

But a long period of low oil prices, from the mid-1980s through the 1990s, stalled much of its effort. The government still relies on petroleum exports for 90 percent of its revenue; oil sales account for half of the country’s gross domestic product.

The current level of oil prices has given the country’s industrialization strategy a new spring, allowing the government to improve its finances while investing in large infrastructure projects. The Saudi G.D.P. has doubled in the last five years. Not counting oil, economic growth has been 4 percent to 6 percent a year since 2002.

Oil has not been the only engine of growth. The country’s private sector has also thrived and now accounts for 45 percent of the economy, compared with just 20 percent about 20 years ago. Since the 1990s, the share of private Saudi money invested at home has doubled, and now represents about 20 percent of total holdings, according to SABB.

“There is a lot of money looking for investment opportunities,” said Mr. Gray at HSBC.

The financial turnaround has been spectacular. In 1999, the Saudi government’s debt amounted to 120 percent of G.D.P. That number has dropped to less than 20 percent as the government paid back its obligations and put its finances in order.

Last year, the government recorded a budget surplus of $48 billion, five times the surplus of 2003. This year, it has built its biggest budget to date around a conservative estimate of oil prices of $45 a barrel; that will almost certainly yield a substantial surplus at the end of the year.

All of that is a far cry from the 1990s, when oil averaged $20 a barrel, thanks mostly to Saudi concerns at the time to keep oil prices low.

One of the most noticeable illustrations of the industrialization push is a plan championed by King Abdullah, the 83-year-old Saudi monarch, to build six new cities throughout the country — including the King Abdullah Economic City on the western coast, near the city of Rabigh; the Knowledge Economic City, near Medina; and the Prince Abdulaziz bin Mousaed Economic City, in the north.

The intent is to create industrial centers that double as housing and commercial hubs for the country’s young and growing population. The Saudi Arabian General Investment Authority, a government agency, expects these cities to add $150 billion to the country’s G.D.P. by 2020, create one million new jobs and be home to as many as five million people.

Drawings of these new towns depict a cross of the futuristic “Blade Runner” and traditional Arabic design. But the new cities are also expected to become new industrial centers that focus on four main sectors: petrochemicals, aluminum, steel and fertilizers.

According to SABB, these cities together will have four times the geographical area of Hong Kong, three times the population of Dubai, and an economic output equal to Singapore’s. Other plans include building four refineries, two petrochemical plants and a modern graduate-level university with an endowment of $10 billion.

The frenzied growth of the economy has had some serious downsides. Inflation has been rampant in the last year; food prices and rents have risen sharply. Traffic jams in Riyadh and other Saudi cities have become a constant affliction, while real estate values have soared and the construction sector is strained by a lack of workers.

The stock market, meanwhile, has yet to recover from its collapse two years ago. From 2000 to early 2006, the local Tadawul stock index surged from 2,000 points to a peak of 19,870, a return of almost 900 percent. But the overvalued market went into a panicky free fall that caused it to lose two-thirds of its value in a matter of months.

After being flat for most of 2007, the market has recovered in the last quarter, gaining more than 40 percent. Still, its value is only about half that of its peak two years ago.

One reason for the partial rebound was anticipation of the sale of shares in Petro Rabigh earlier this month. For the first time, Saudi investors had a chance to buy a major asset linked to Aramco. The initial public offering, for 25 percent of Petro Rabigh, raised $1.23 billion and was the largest stock sale in Saudi history. The stock is expected to begin trading at the end of the month.

The project itself is still about a year away from completion. Once in operation, it will produce 2.4 million tons of plastics a year. This venture, along with dozens of other megaprojects, will firmly anchor Saudi Arabia as one of the world’s top suppliers of chemical products as well as oil.

“Saudi Aramco has a vision of itself as Exxon Mobil,” Mr. Seznec of Georgetown said, “except much bigger.”

Bush To Push Saudi On Oil In Mideast Talks?

2008-01-08T08:08:00.000-08:00

ENERGY MATTERS: Bush To Push Saudi On Oil In Mideast Talks? 1/8/2008 7:31:00 AM

NEW YORK (Dow Jones)--The last time U.S. President George Bush met face-to-face with Saudi Arabia's King Abdullah, crude oil prices were nearly half their current price and Saudi oil output was 5% higher than it is now.

Bush heads off Tuesday for a Middle East trip aimed at advancing efforts for a negotiated peace between Israeli and Palestinian leaders. After the Holy Land, he stops in Bahrain and Egypt and OPEC members Kuwait, the UAE and Saudi Arabia before returning to Washington on Jan. 16. Oil markets will be watching closely for signs on whether he leans on the Saudis to open the spigots.

The meeting with the leader of the world's biggest oil exporter - the first since the Saudi king came to Bush's Texas ranch in April 2005 - comes next week.

Despite crude oil prices reaching $100 a barrel in the U.S., the world's largest oil consumer, in recent days, energy issues are only one of several interlocking agenda items, along with the peace process, Iraq, Iran and, most likely, a major arms sale, analysts said.

Bush's national security advisor took 30 questions about the upcoming trip at a Jan. 3 press briefing: Not one was about oil.

Both the president and Saudi Arabia's oil minister, have sounded nonchalant about triple-digit crude prices in recent days, using similar language.

"Hundred-dollar oil is a reflection of supply and demand," Bush told Reuters in a Jan. 3 interview, though he did fret about people "paying a lot for gasoline." He alsorepeated his position that the U.S. emergency crude oil stockpile, the Strategic Petroleum Reserve, should be used only to quell supply crises, not high prices.

"The market decides the price of oil," Saudi Arabia's Oil Minister Ali Naimi said Sunday.

While the kingdom and its fellow OPEC members lost the power to dictate official crude oil selling prices 20 years ago with the advent of the futures market, production decisions greatly impact prices.

Bumpy Relationship

Since the last Bush-Abdullah meeting, the Organization of Petroleum Exporting Countries first cut output to shore up sliding oil prices and later boosted supplies.

But output from Saudi Arabia, now around 9 million barrels a day, is about 450,000 barrels a day lower than back in April 2005. The Saudis are planning to lift output capacity to about 12 million barrels a day by 2009, even as short-term plans to increase output of light crude by 500,000 barrels a day have been delayed by a few months into the first quarter of 2008.

Despite calls from U.S. Energy Secretary Samuel Bodman to boost output, OPEC decided to keep output steady at its December meeting and set its next gathering for Feb. 1. OPEC has said it believes current inventories and supplies are adequate, that speculators are driving up oil prices, and has expressed some concerns about the potential for an economic slowdown, or worse, in the U.S.

In the years since the last U.S.-Saudi summit, the oilrelationship has suffered some bumps and some high points. Bush upset the Saudis in his 2006 State of the Union address, calling for the replacement of "more than 75% of our oil imports from the Middle East by 2025." The Saudis, accounting for about 14% of U.S. crude imports, are the biggest Mideast oil supplier to the U.S.

Bush aides backtracked, emphasizing that it was the volume reductions, not specifically Saudi supplies, that ambitious targets for use of renewable fuels were targeting.

Elsewhere, the Saudis have given the green light for a $7 billion project to more than double the size of the Port Arthur, Texas refinery they run as a joint venture with Royal Dutch/Shell to 600,000 barrels a day, making it the biggest refinery in the U.S.

Industry analysts said they believe the Saudis would be more comfortable with a lower oil price, as it would be easier to digest for the global economy. The Saudis are thought to be willing to make available all the medium and heavy grade crudes requested by oil companies, but aren't expected to dramatically turn up the taps if buyers are absent.

Intertwined Issues

How much the issue of Saudi oil output becomes a matter of contention in the upcoming talks remains to be seen. The Saudis, who hold the bulk of OPEC's spare production capacity, have said in the past that high oil prices have been necessary to pay the high costs of fighting the war on terror. But $100 crude is clearly an undesirable region for both countries, maybe more so for the Saudis, analysts said.

"I think the White House is likely to maintain some ambiguity about whether or not he'll broach the matter of oil prices with the Saudis," said Antoine Halff, energy analyst at NewEdge Group in New York.

Halff said he doubts strongly "that it will be at the center of the conversations," noting that the federal Department of Energy's forecasts call for crude oil prices to fall back from historic highs this year.

"I think oil will take a back seat to Iran and the Israel-Palestinians, those issues being closely intertwined," Halff said. "If oil is at the center of conversations, it will be mostly inasmuch as what happens with Iran affects energy markets, whether directly or indirectly."

The U.S. has been pushing for tougher economic sanctions on Iran, as it fears the country would use its efforts to develop nuclear energy into nuclear weapons capabilities, which it would use to threaten Israel.

Iranian and U.S. forces faced off in an incident in the Strait of Hormuz, the vital Gulf oil shipping channel on Saturday, but oil markets shook off the matter on Monday. Extremely warm temperatures in the Northeast U.S. - the world's largest heating oil market - and fresh concerns about the unemployment rate, igniting fear that the U.S. may be heading into a recession, sent crude oil futures down nearly 3% to $95.09 a barrel.

Guns, Oil On Tap

Greg Priddy, analyst at the Eurasia Group in Washington, D.C., said he expects Bush will push the Saudis on oil output next week and a major U.S. arms sale to the Saudis also will be key to the discussions.

The Bush administration is expected to formally notify Congress on Jan. 15 - when the president is in the kingdom - of the $20 billion high technology arms sale that was agreed last autumn. "That sets in motion a 30-day period in which Congress can pass a resolution to block the sale. The timing of the event, given the controversy surrounding the arms deal, could also play into the decision making," Priddy said.

Source: David Bird, Dow Jones Newswires; 201-938-4423; david.bird@dowjones.com (David Bird is senior energy correspondent for Dow Jones Newswires).

Naimi says market sets oil price

2008-01-07T11:13:00.000-08:00

Naimi says market sets oil price
http://www.platts.com/Oil/Resources/News%20Features/opec/index.xml
Platts

January 7, 2008 - Saudi Arabian oil minister Ali Naimi was quoted January 7 as saying that oil markets, not producers, determine the price of oil, in his first comments since oil futures traded above $100/b, following comments by OPEC president Chakib Khelil predicting further price rises in the first quarter.

"Prices are determined by the market," Naimi told the Saudi-owned al-Hayat newspaper on the sidelines of an energy conference in Riyadh.

This was Naimi's only comment since oil prices spiked to $100/b last January 2. The front-month light sweet crude oil futures contract in New York traded at an all-time high of $100.09/b the next day but has since fallen back. The February NYMEX contract closed at $97.91/b on January 4.

OPEC kingpin Saudi Arabia is the most influential voice within the producers' club.

Naimi's comment echoed remarks made by OPEC president Chakib Khelil, who told reporters in Algiers on Saturday that oil prices might rise further in the first quarter due to violence in Nigeria, political turmoil in Pakistan and strong demand, before stabilizing in the lower-demand second quarter, though he did not consider $100/barrel high in real terms.

He said oil prices currently a few dollars below $100/b did not reflect fundamentals of supply and demand but rather geopolitics, stock drawdowns in the US and heavy investment by funds in commodities markets.

The next OPEC meeting in Vienna would consider all these factors, not just price, before deciding whether to change its production target, said Khelil, who took over the rotating OPEC presidency on January 1.

"The recent price rally is due mainly to the violence in Nigeria, where production has been shut in, and the turmoil in Pakistan, which is considered by market players to be a geopolitical problem, and of course US stock levels, which are at their lowest in four years," Khelil said.

"Furthermore, it has been a very difficult winter not just in the US but also in Europe, so the combination of these factors led to the price rise," he said, when asked if OPEC would consider raising production.

"There is an extraordinary meeting in Vienna in February which will review the market up to February. We will assess the situation, see whether stocks have fallen further. The decision will be by consensus whether we increase or whether we keep production as is. Only the meeting will decide," said Khelil, refusing to predict what action the group might take.

Pressed further on the issue of an increase in supply, Khelil replied: "This is a question for ministers to decide in the light of market developments. There are so many parameters to consider and to determine the role of fundamentals, whether it is due to supply and demand or all other factors." But he added: "At the moment, prices do not at all reflect supply and demand...There is a balance between supply and demand."

Khelil, who is also the Algerian oil minister, later told French news agency AFP that $100/barrel "was not necessarily very high" given high demand for oil and rising production costs.

The $100/b price should be seen in real terms, taking inflation into account, he said.

The current oil price was therefore below its 1980 record of "between $102 and $110, depending on estimates," he said.

Khelil said that high oil demand was being pushed by "China and India but also by the Middle East," where he said consumption had risen immensely. "When you take that into account, $100 is not necessarily very high."

Saudi Aramco Raises Crude Oil Prices to the U.S.

2008-01-07T11:10:00.000-08:00

Saudi Aramco Raises Crude Oil Prices to the U.S. for February
By Nesa Subrahmaniyan
Jan. 7 (Bloomberg)

Saudi Aramco, the world's largest state oil company, increased its official selling prices for crude shipments to the U.S. for a second month in February.

The discount of Arab Light, the most common variety exported by Saudi Arabia, to Saudi Aramco's benchmark price narrowed to $4.15 a barrel from $6.85 a barrel in January, the Dhahran-based company said in a faxed statement on Jan. 5. Discounts for Extra Light, Arab Medium and Arab Heavy were also reduced. Aramco raised prices of Arabe Medium and Arab Heavy grades for Asian customers, while cutting them for Europe.

For U.S. customers, prices for all grades were raised by between $2.50 and $2.80 a barrel. Arab Extra Light's discount narrowed to minus $1.10 a barrel from minus $3.90 a barrel, Arab Medium to minus $7.45 from $10.05 and Arab Heavy grade to minus $10.75 from minus $13.25, Aramco said.

Prices to the U.S. are set as a discount to the West Texas Intermediate benchmark.

For Asian customers, Saudi Aramco cut its premiums for Arab Super Light, Extra Light and Arab Light by between 20 cents and $1 a barrel. Asian prices are quoted in relation to the average of Oman and Dubai grades, the two Arabian Gulf benchmarks used by Asian oil refiners and traders. Aramco started linking its prices to the average of Oman and Dubai crudes in 1986.

Aramco cut the premium for Arab Super Light by $1 to $6.05 a barrel, by 40 cents to $4.95 for Extra Light and by 20 cents to $1.55 for Arab Light. It narrowed discounts for Arab Medium by 10 cents to minus $1.75 a barrel and by 30 cents to minus $4.80 a barrel for its Arab Heavy grade.

Europe Shipments

Refiners in Europe and the Mediterranean would pay less for Saudi Arabian crude oil shipments in February.

For its Northwest European customers, Aramco widened Arab Light's discount to the benchmark by 25 cents to minus $3.15, Arab Medium was lowered to minus $5.70 and Arab Heavy reduced to minus $7.90, while Extra Light was cut to a premium of $1.20 from $1.55.

Oil refiners in the Mediterranean would pay between 50 cents and 70 cents less for their shipments from Saudi Arabia.

Mediterranean and European prices are expressed as a differential to Intercontinental Exchange's weighted average of North Sea Brent crude oil. All prices are free-on-board, where the buyer has to pay for shipping costs.

Saudi Aramco's most expensive oil variety is Arab Super Light and the cheapest is Arab Heavy.

Vela Orders 4 VLCCs for $600 million

2007-11-18T21:36:00.000-08:00

Daewoo Shipbuilding Wins Order for Oil Tankers at Record Price
By Kyunghee Park
Nov. 14 (Bloomberg)

Daewoo Shipbuilding & Marine Engineering Co., the world's third-largest shipbuilder, received an order to build four crude tankers at an industry record price from Vela International Marine Ltd. of Saudi Arabia.

The 317,000-deadweight-ton tankers were priced at about $151 million each, Seoul-based Daewoo said in an e-mailed statement today. A 300,000-ton vessel cost $142 million at the end of September, according to Clarkson Plc, the world's biggest shipbroker. The order was announced yesterday.

Shipyards in South Korea, the world's biggest shipbuilding nation, have received record orders this year as global demand for iron ore, fuel, toys and computers increase the need vessels. Ship prices have more than doubled to a record since 2003, when they came off from a 10-year low.

``The order will help further improve Daewoo Shipbuilding's profitability,'' the shipbuilder said in the statement.

Including the latest order, Daewoo Shipbuilding now has a total of $18 billion in new contracts this year, surpassing its target of $17 billion. The company's backlog rose to about $39 billion, representing more than three years of work.

Daewoo Shipbuilding added 2.6 percent to 50,800 won as of 9:48 a.m. in Seoul, compared with a 2.4 percent advance in the benchmark Kospi index. The stock has climbed 74 percent this year, about double the Kospi's gain.

Saudi pipeline blast kills 28

2007-11-18T08:39:00.000-08:00

Saudi pipeline blast kills 28
The Associated Press
Nov. 18, 2007

An explosion set a gas pipeline ablaze and killed 28 workers in eastern Saudi Arabia, the Saudi national oil company Aramco said Sunday.

"The fire broke out while contractor workers where linking a new pipe" to the pipeline during maintenance late Saturday, Aramco said in a statement.

It said 28 workers, including five Aramco employees, had died in the fire, which was put out early Sunday some 30 kilometers from its Hawiyah gas plant.

The company did not specify how many people had been injured in the blaze, or give the victims' nationalities.

"The company is taking all necessary measures to guarantee the continuation of the normal gas output," it said.

Saudi Arabia's national oil company, Saudi Aramco is the world's largest oil producer, located on the country's east coast.

The Hawiyah plant produces 310,000 barrels of ethane and NGL daily.

URL: http://www.msnbc.msn.com/id/21864094/

IEA Cuts Oil Demand Forecast

2007-11-13T16:42:00.000-08:00

IEA Cuts Oil Demand Forecast as High Prices Curb Use
By Bill Murray
Nov. 13 (Bloomberg)

The International Energy Agency, the adviser to 26 oil-consuming nations, cut its forecast for global demand for the rest of this year and 2008 as prices near $100 a barrel slow consumption in the U.S., Europe and Japan.

Global demand next year will be 87.69 million barrels a day, the IEA said today in its monthly report, 300,000 barrels a day less than its previous estimate. The Paris-based agency reduced its estimate for the fourth quarter by 500,000 barrels a day, to 87.14 million barrels.

The IEA has cut its fourth-quarter forecast three times since August on expectations higher gasoline prices and an economic slowdown in the U.S. will restrain demand in the world's largest energy consumer. Federal Reserve Chairman Ben S. Bernanke said last week the U.S. economy is likely to ``slow noticeably'' this quarter.

``We are certainly seeing a downward revision for 2007 and 2008, and high prices starting to have an effect,'' Lawrence Eagles, chief author of the monthly report, said.

``Consumer spending on transportation fuel in the U.S. is reaching the type of levels in the 1980s'' when inflation- adjusted prices were at similar levels, he said in an interview.

India, China

Oil prices have risen 53 percent this year on surging demand from developing countries led by China and India. Futures reached a record $98.62 a barrel in New York on Nov. 7. Chinese and Indian demand for crude could create a supply ``crunch'' as soon as 2015, the IEA said in a separate report last week.

``The whole fact that we've approached $100 has created a scare for some people,'' said Michael Davies, an energy analyst with Sucden (U.K.) Ltd. in London. ``The underlying fundamentals are that we're expecting tighter markets through 2015.''

Oil demand in the U.S. will be slower than previously expected next year as near-record fuel prices and a slumping housing market depress consumer spending, the IEA said.

Still, while the rapid increase in global prices this year has affected demand, especially in the U.S., ``it is too soon to believe that significant structural changes have taken place to make this lower level of demand permanent,'' the report said.

Stockpiles Fall

Industry stockpiles in the world's most developed economies fell 29.5 million barrels in September to 2.6 billion barrels. Global inventories are 113.9 million barrels lower than a year and Japanese crude stock levels are at their lowest in at least 20 years, the report said.

``The warning flags on demand are out there and we're not into the winter yet,'' said Mike Wittner, a commodities analyst with Societe Generale in London. ``Even with the revisions the IEA has made, the market still expects stock draws into the winter and the first quarter, and that's what the market is keying on.''

In addition, half of the world's growth in oil demand is in China and the Middle East, where consumers benefit from government fuel subsidies, the report said.

Chinese oil demand is expected to remain ``strong,'' driven by economic growth, while rising oil revenue in the Middle East mean that subsidies are ``more easily financed and unlikely to be removed,'' the IEA said.

OPEC Call

The ``call on OPEC,'' an estimate by the IEA of how much crude is needed from the Organization of Petroleum Exporting Countries to balance global markets, was reduced by an average 400,000 barrels a day for 2008 to 31.3 million barrels a day, in part because of lower demand in the world's most developed economies.

The IEA cut its estimate of non-OPEC oil production for 2007 by 35,000 barrels a day to 50.1 million barrels a day, and left unchanged its estimate for 2008 at 51.2 million barrels a day on supply from the U.S., Canada, Brazil and Russia.

Production of crude oil from OPEC's 12 members, including new member Angola, rose 410,000 barrels a day in October to an average 31.2 million barrels a day, the IEA estimated, with half the increase coming from Iraq and Angola.

Crude output from Saudi Arabia, OPEC's largest member, rose 100,000 barrels a day last month, to 8.57 million barrels a day, while Iraqi supply gained 120,000 barrels a day to 2.3 million barrels a day, the highest since April 2004, the IEA said.

Excluding Angola and Iraq, which are exempt from OPEC's output targets, the producer group pumped 27.15 million barrels a day last month, a gain of 195,000 barrels daily. OPEC spare capacity slipped in October to 2.46 million barrels, the report said.

Saudi Arabia Pushes for Extra 500,000 bpd OPEC Hike

2007-11-12T22:17:00.000-08:00

Saudi Arabia Pushes for Extra 500,000 bpd OPEC Hike
by Adam Smallman and Spencer Swartz
Nov 12th, 2007

Saudi Arabia is to push for an extra 500,000 barrels-a-day hike in output by OPEC, or 1.8%, as soon as this week if oil prices drive toward $100 a barrel, an official familiar with the situation said Monday.

Speaking the day after Saudi Arabia's Oil Minister Ali Naimi indicated that the 12-member Organization of Petroleum Exporting Countries may discuss a production increase, an official close to the group's policy discussions told Dow Jones Newswires: "The Saudis want another 500,000 barrels a day in the market. They don't like these prices for consumers."

Leaders from the world's top oil producers will meet this weekend in Saudi Arabia's capital, Riyadh to discuss the challenges a potential global recession and an anemic dollar present to their estimated $1.8 billion a day in revenue.

Presidents, sheikhs and a king from the OPEC cartel, which meets more than 40% of the world's needs, are to discuss a raft of challenges to their core business, including soaring costs to projects, heightened environmental concerns that spur a push toward alternative energies, and what, if anything, they can do to prevent record oil prices from destabilizing the global economy.

Senior officials within the Saudi Arabian delegation have made it plain they don't feel comfortable with current oil prices, which have almost doubled from a low of $49.90 a barrel in January to a record $98.62 a barrel for U.S., light, sweet crude last week, and that something must be done.

In Kuwait Sunday, Naimi, OPEC's de facto leader, told reporters: "It is premature" to speak of a production hike, but "when OPEC meets, we will discuss this issue," though it was unclear if he was referring to this week's summit or formal OPEC policy talks by oil ministers due Dec. 5 in Abu Dhabi.

One sticking point is the timing of any such a move. The official said the timing would hinge on talks with other OPEC oil ministers, who will meet Thursday or Friday in a closed session ahead of the summit of heads of state in Riyadh at the weekend.

"If the market progresses (and rises above) $100 a barrel, I think the Saudis will push for something then and not wait until the December meeting," the official said.

But a source familiar with OPEC thinking said Monday that insiders "really don't want this summit to turn into an OPEC policy meeting" and senior officials "are not getting any indication that they'll do anything" this week. It was, the source added, perfectly possible that oil ministers might agree to something late this week.

OPEC Revenue

OPEC's revenue may climb 9% this year to $658 billion, the Financial Times reported Monday, citing the U.S. Energy Information Administration, but, with rising economic concerns driven by a worsening global credit crunch, it is oil and the associated costs of heating fuel and gasoline that some economists now say could be the trigger for a full scale economic meltdown.

But the oil leaders may have little wiggle room when it comes to averting such an event, as many believe a wall of investment cash, not constrained oil flows, lie behind the record prices. Any move to add, say, a million barrels a day of additional oil, or around 3% more than they currently pump, would eat into Saudi Arabia's spare capacity ahead of the worst of winter, and at a time of heightened concern over OPEC member Iran's nuclear program and the future stability of U.S. ally Pakistan.

OPEC members at their last meeting on Sept. 11 agreed to raise output by 500,000 barrels a day from Nov. 1, shared among the 10 members with production quotas, amid growing concerns high oil prices may adversely affect global economies and that demand could outstrip oil supplies as the northern hemisphere's energy consuming nations head into winter season.

According to estimates by Dow Jones Newswires, the OPEC-10 in October were already pumping roughly in line with their new target of 27.25 million barrels a day, with Iraq and Angola, which don't have quotas, pumping a further 3.9 million barrels a day.

"However, OPEC's announcement has not yet dampened upward price pressure, and it is unlikely that these higher volumes will be enough to halt the downward trend in commercial inventories over the next several months," the U.S. Energy Information Administration said.

Indeed, recent output hikes by OPEC have tended to be followed by record high oil prices as investors assume spare capacity is shrinking and demand will outstrip supply.

With no OPEC hike agreed this week, leaders, many of whom hold competing political views, may be forced into issuing a bland communiqué that insiders say seeks to reassure customers they are reliable suppliers of oil and are increasingly responsible toward the environment.

OPEC oil output rose in October

2007-10-24T10:20:00.000-07:00

OPEC oil output rose in October: Petrologistics
October 24th, 2007
Gulf Times/Doha

OPEC is already raising oil supply in response to record prices and in advance of its deal to increase output from November, a consultant who tracks tanker movements said yesterday.

OPEC’s 10 members subject to output limits, all except Iraq and Angola, are set to pump 27.5mn barrels per day, up from a revised 27.2mn bpd in September, said Conrad Gerber of Petrologistics.

The estimate indicates that OPEC may be relaxing adherence to supply curbs in response to a jump in oil prices, which hit a record high of $90.07 on Friday.
The group on September 11 formally agreed to lift production from November 1
“It’s a surprisingly large increase,” Gerber said. “The Saudis are obviously pushing out more crude in advance of the November increase.”

Saudi Arabia, OPEC’s top producer, is on course to lift supply to 8.95mn bpd from 8.88mn bpd in September, he said.

Other increases are coming from Iran, which is expected to raise output by 50,000 bpd to 3.95mn bpd and the United Arab Emirates, which is forecast to pump 2.65mn bpd, a gain of 60,000 bpd.

Overall output from the 12-member Opec is set to rise 500,000 bpd to 31.4mn bpd, Petrologistics said, on higher shipments from Iraq and Angola.

Iraqi output is expected to increase to 2.2mn bpd this month, up about 40,000 bpd from September, Gerber said.

Exports are rising because the country is exporting some Kirkuk crude from its northern fields, shipments that have remained sporadic since the US-led invasion in March 2003.

Angolan output, on a rising trend as new fields come on stream, is likely to climb to 1.75mn bpd from 1.6mn bpd in September.

Opec, source of more than a third of the world’s oil, agreed on Sept. 11 to raise output by 500,000 bpd from November 1 in a gesture to consumer nations worried by the economic impact of record prices.

According to Petrologistics, they are now pumping oil at the same level from which they started cutting production in 2006. Opec said the 10 were pumping 27.5mn bpd before the cutbacks began.

Oil prices declined yesterday after the Petrologistics estimate was released.
Oil prices extended losses amid worries that slower US economic growth could dampen global demand, dealers said.

Crude futures scaled dizzy heights last week owing to tight supplies and geopolitical tensions in the Middle East region.

Prices have fallen on fresh "concerns over economic growth and, in turn, oil demand growth," Goldman Sachs analysts said.

Additional downward momentum has come from Kurdish rebels offering Turkey a ceasefire on Monday.

– Reuters, AFP

OPEC Raising Output Ahead of Nov Output Hike
by Spencer Swartz
Oct 23, 2007

OPEC oil production is expected to rise this month by 500,000 barrels a day from September as the group's biggest producer, Saudi Arabia, steps up output ahead of OPEC's Nov. 1 deadline to begin providing markets with new supplies, tanker tracker consultant Petrologistics said Tuesday.

The 12-nation Organization of Petroleum Exporting Countries is expected to pump at a rate of 31.4 million barrels a day in October from 30.9 million barrels a day last month.

The group, excluding Iraq and Angola which aren't part of OPEC's quota system, are seen producing about 300,000 barrels a day more than in September at 27.5 million barrels a day, said Conrad Gerber, head of Geneva-based Petrologistics, which bases its figures on movements in the global tanker market.

"We're definitely seeing more production from the Gulf. Saudi Arabia is making more available," Gerber said, noting the kingdom is expected to pump at a rate of 8.95 million barrels a day this month, up 150,000 barrels from September.

Gerber said he didn't believe OPEC would produce in November at the same rate of increase being seen in October. "I don't think we'll go up as much... part of this is the big maintenance program in the United Arab Emirates," Gerber said.

Gerber said non-quota member Angola was expected to boost production by 150,000 barrels a day to 1.75 million barrels a day as new projects enter service in the West African nation.

Nigeria, making incremental headway into returning oil production sabotaged by militant attacks, was seen pumping about 50,000 barrels a day more in October at 2.25 million barrels a day.

Gulf countries Kuwait and the UAE were each seen producing 50,000 and 70,000 barrels a day more this month than in September at 2.62 million barrels a day and 2.65 million barrels a day, respectively.

The Abu Dhabi National Oil Co., or ADNOC, is scheduled to do maintenance at three major offshore oil fields that will ax crude production by 600,000 barrels a day from November for almost a month. State-run Adnoc, which pumps 95% of the UAE's oil, said in late September that it would meet all its term client commitments by "advancing the majority of liftings." Adnoc will do the maintenance, which has been planned for more than a year, at its Upper Zakum, Lower Zakum and Umm Shaif fields.

War-torn Iraq was expected to pump about 60,000 barrels a day more in October than last month at 2.2 million barrels a day, though this could be revised up in coming days, Gerber said.

Saudi Arabia issues rules for succession

2007-10-08T08:10:00.000-07:00

Saudi Arabia issues rules for succession council
By Andrew Hammond
Oct 8, 2007
(Reuters)

Saudi Arabia's King Abdullah issued rules on Monday guiding the conduct of a body set up last year to regulate political succession in the world's biggest oil exporter.

The Saudi throne has passed from one brother to the next since the death of Abdul-Aziz bin Saud, the founder of the state. With many of his 44 sons now dead or aging, power could soon move onto the next generation; his grandsons.

Western diplomats have welcomed efforts to regulate succession in the Islamic kingdom, which they say is an attempt to avoid leadership disputes, which have erupted in the past.

Unlike many Western monarchies, the throne in Saudi Arabia does not pass automatically from a father to his eldest son. Neither is it decided by seniority, but by a small group of the most powerful Saudi royals.

Saudi Arabia last year announced plans to set up a so-called "allegiance" council which would regulate succession but would not take effect until Crown Prince Sultan, heir to King Abdullah, accedes to the thrown.

Last year's statement said that if the new council rejects a nominated crown prince, it may vote for one of three other princes the king nominates for the title.

Monday's statute did not mention this but appears to ensure that power lies with the living sons of the kingdom's founder since there can be only one grandson on the council for each dead or incapacitated son of Abdul-Aziz bin Saud.

The statute, carried on the state-run SPA news agency, also allows two-thirds of the council to force out any prince who is deemed to be "in transgression" of the statutes, which say members should be at least 22 years old and have demonstrated "probity and competence".

The statute also talks of a "medical committee" but gives few details.

Within 10 days of becoming king, a new monarch must inform the committee of his choice for crown prince or ask the council to make its own nomination.

The Saud family set up Saudi Arabia in 1932 and dominates political life. The country has no elected parliament, rules by strict Islamic law that gives clerics wide powers, and bans political parties and street demonstrations.

The last succession from the late King Fahd to King Abdullah in 2005 was smooth, but there have been crises in the past.

Saudi Arabia's second king, Saud, was deposed in 1964 by his own family when he was deemed incompetent after a power struggle with his half-brother Faisal. Faisal, his successor, was shot dead by a nephew who was then declared officially as insane.

The new council will be "reappointed" every four years and the statutes can only be amended "by royal decree after the consent of the allegiance institution", SPA said.

The statute also says council decisions should be approved by the king but it is not clear what happens if the king opposes committee votes.

King Abdullah, an octogenarian, oversees a country with a growing population of 24 million, including 7 million foreigners, struggling to steer a course between tradition and modernity.

OPEC Raises September Output

2007-10-04T00:14:00.000-07:00

OPEC raises oil output slightly in September
By Randy Fabi
Oct 2 (Reuters)

OPEC boosted its oil production in September as crude prices soared to record heights above $80 a barrel, a Reuters survey showed on Tuesday.

Ten OPEC members bound by output targets, all except Iraq and Angola, pumped 26.8 million barrels per day, up 60,000 bpd from August, according to the survey of oil firms, traders, OPEC officials and analysts.

The majority of the increase came from the world's biggest exporter Saudi Arabia, which last month convinced fellow OPEC members to open the taps amid surging oil prices.

The Organization of the Petroleum Exporting countries, source of more than a third of the world's oil, agreed to raise production by 500,000 bpd from Nov. 1.

"With these high prices, there is no doubt in my mind that OPEC is going to jump the gun and ship out more barrels before Nov. 1, but I haven't seen any proof yet," said Paul Tossetti, director of market analysis at Washington-based PFC Energy.

Oil has traded at around $80 a barrel for the past month, surging to a record high of $83.90 on Sept. 20. Total OPEC output rose to 30.62 million bpd from 30.37 million bpd in August as Iraq and Angola boosted their supplies, according to the survey. Iraq has issued three tenders in a month to sell Kirkuk oil from its northern fields, indicating exports may be stabilising after years of sabotage kept the pipeline mostly idle.

About 7.5 million barrels have been sold via the first two tenders. "That's an extra 200,000 to 300,000 barrels a day of crude out of Iraq. That is a major change and one to watch," Tossetti said.

Angola has also ramped up output with the start of its Plutonio oilfields. Angolan state oil company Sonangol said on Tuesday it commenced first production in September, with initial output at 80,000 bpd. OPEC is expected to give Angola, its newest member, an output target from Jan. 1.

Following is crude output in millions of barrels a day.
          Sept     Aug         Target
          output   output   output Nov 1*

Algeria      1.38     1.38         1.357
Indonesia    0.83     0.83         0.865
Iran         3.86     3.86         3.817
Kuwait       2.41     2.41         2.531
Libya        1.7      1.7          1.712
Nigeria      2.16     2.16         2.163
Qatar        0.8      0.8          0.828
Saudi Arabia 8.7      8.65         8.943
UAE          2.56     2.56         2.567
Venezuela    2.4      2.39         2.470
OPEC-10     26.8     26.74        27.253
Iraq         2.1      1.95
Angola       1.72     1.68
TOTAL       30.62    30.37
(R)-Revised. *Output targets for November 1 were published briefly on
OPEC's website, but were subsequently withdrawn without
explanation. OPEC quotas exclude condensate and natural gas liquids and
apply to supply rather than wellhead output, defined to exclude
movements to, but not sales from, storage. Saudi and Kuwaiti
data includes Neutral Zone. Saudi data excludes oil produced for
Bahrain. Venezuelan data includes upgraded synthetic oil.

National Australia Bank Raises Oil Price Forecasts

2007-09-27T22:00:00.000-07:00

National Australia Bank Raises Oil Price Forecasts Through 2008
By Angela Macdonald-Smith
Sept. 28 (Bloomberg

National Australia Bank Ltd., the country's biggest lender, raised its forecasts for crude oil prices through 2008, citing the ``tight'' balance between supply and demand.

West Texas Intermediate, the U.S. benchmark oil variety, may average $66.50 a barrel this year, up from an earlier forecast of $63, while prices may average $65 next year, up from a previous forecast of $60, the Melbourne-based bank said in a quarterly report. Brent crude, a European benchmark, may average $66.90 this year, and $62.78 next year, it said.

``Reflecting the tight market conditions, forecast crude-oil prices have been revised upwards this month,'' National Australia analysts led by Gerard Burg said in the report. ``In 2008, crude markets are expected to remain tight, supported by OPEC production discipline and strong demand from industrializing nations.''

OPEC's influence over the market is set to increase, as Angola's decision to joint the group at the start of 2007 reduced opportunities for production growth outside the cartel, National Australia Bank said.

``Increasing market power for OPEC will be the most significant development in global oil markets in coming years,'' the analysts said.

Saudi Production from IEA

2007-09-27T21:38:00.000-07:00

From IEA's September Oil Market Report (OMR), pages 21-22

The supply estimate for Saudi Arabia in July is also revised up by 50 kb/d to 8.67 mb/d and further to 8.7 mb/d for August. Stronger exports account for the July change. This report uses crude supply (comprising exports and domestic refinery throughput) as a proxy for production for Saudi Arabia and some other OPEC producers. Hence data on the JODI system showing 8.9 mb/d output for Saudi Arabia in July include substantial deliveries into storage. This report would normally account for that extra oil in subsequent months when it is exported. Nonetheless, Saudi supply does appear to be edging higher, despite buyers generally suggesting flat-term volumes for the period through October.

New OPEC Quotas

2007-09-20T18:43:00.000-07:00

OPEC says Saudis to assume almost two-thirds of output hike
Platts
Sept. 14, 2007

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.

OPEC, at its meeting Tuesday in Vienna, said it would raise its actual
production by 500,000 b/d from November, while setting a new output target of
27.253 million b/d.

Cartel officials said the new allocation figures would be altered from
August output numbers from secondary sources, which actually results in a
slightly higher planned output increase of 522,000 b/d.

In raising its production target to 27.253 million b/d from 25.8 million
b/d, OPEC essentially formalized 930,000 b/d of overproduction, on top of
adding the 522,000 b/d in new output.

Not all members will see an increase under the new allocations; figures
for Iran and the United Arab Emirates have decreased. Iraq and Angola are not
part of OPEC's output agreements and are not assigned allocations, though
Angola will join the allocation system next year.

Here are the new allocations for OPEC's 10 members bound by output
agreements, from November 1:


              August     New allocation  Change
              output     from Nov 1
Algeria        1,354       1,357           3
Indonesia        839         865          26
Iran           3,869       3,817         -52
Kuwait         2,446       2,531          85
Libya          1,710       1,712           2
Nigeria        2,145       2,163          18
Qatar            821         828           7
Saudi Arabia   8,616       8,943         327
UAE            2,573       2,567          -6
Venezuela      2,358       2,470         112

Total         26,730      27,253         522
(All figures in '000 barrels/day)

Read more about OPEC in Platts OPEC Guide at
http://www.platts.com/Oil/Resources/News%20Features/opec/index.xml

Jim Jubak on OPEC

2007-09-18T21:49:00.000-07:00

The oil-producing nations' fast-growing, subsidized economies and soaring consumption of petroleum are big reasons the rest of world is paying more for its crude.

By Jim Jubak
This time, OPEC really is to blame for higher oil prices. [original article]
Jubak's Journal 9/18/2007

In recent days, oil traders and speculators have forced the price of oil above $80 a barrel despite the Organization of Petroleum Exporting Countries' decision to raise production.

I fully expect oil prices to keep rising for the rest of 2007 and into 2008. The only thing likely to stop oil from climbing to $85 a barrel is profit-taking by speculators themselves.

Not every OPEC country is happy about this rise in oil prices. The Saudis, for example, have argued for increased production to hold down prices and keep demand from falling. But oil prices are headed up no matter what OPEC says or does.

And OPEC really doesn't have anyone else to blame for its inability to set prices. Runaway demand in the oil-producing countries themselves is the newest factor pushing up global oil prices.

Why prices are still rising

You can see where oil prices are headed in the reaction Sept. 12 to OPEC's announcement that it would increase production. Despite the news, prices went up that day. The price of a barrel of benchmark West Texas Intermediate crude climbed $1.68 to $79.91.

The next day, crude tacked on an additional 13 cents a barrel to close at $80.04. Speculators were ecstatic: Hedge funds and other traders have staked out big positions in the options market at $80 a barrel that are worth billions as oil climbs above that level.

So why were traders able to move oil prices up in the face of an OPEC production increase?

A 500,000-barrel-a-day increase in production is little more than symbolic. If the Saudis, the driving force behind this increase, were serious about holding prices at this level or driving them down, they would have pushed through an increase of 1 million barrels or more. All an increase of this size does is ratify current levels of production, which are as much as 2 million barrels a day above the official quota.

There's a huge debate inside the oil industry and in the commodity pits about the status of Saudi oil reserves. The Saudis, who produce 9.5 million barrels a day now, have announced they will boost production to 12.5 million barrels, a 32% increase, by the end of this decade and to 15 million barrels by the end of the next decade. However, some oil traders and industry analysts don't think Saudi Arabia can deliver and contend that the Saudis' big oil reserves are in far worse condition than they are letting on. The impact of any shortfall would be huge because the Saudis are the only likely global source of a major increase in oil production in the next five years, according to the International Energy Agency. Without that production increase, the world is headed for a very painful short-term oil squeeze, the agency has concluded. So you can think of energy traders' bets on oil climbing above $80 as a huge vote that the Saudis won't or can't deliver as promised.

Traders and analysts also aren't convinced that OPEC as a whole wants to increase production. The Saudis carry great clout inside that organization, but they have faced fierce opposition this year from an OPEC faction headed by Venezuela and Iran that is adamant about keeping prices as high as possible. Both countries desperately need high oil prices: Oil revenue is the only thing that stands between the regimes that rule in Caracas and Tehran and huge, possibly uncontainable protests. Anything that cuts into revenue, endangering subsidies that keep gasoline prices in Iran near 40 cents a gallon and that fund cheap food and health care in Venezuela, would be a political disaster.

In the past, Venezuela and Iran probably wouldn't have carried the day. OPEC regularly raised production to modulate price spikes, so that peak oil prices wouldn't cut into global economic growth, leading to lower demand for oil and a plunge in oil prices.

In other words, OPEC felt it was in its own interest to avoid pushing the global economy into a slowdown with unsustainably high oil prices. Sometimes OPEC got it wrong and set prices too high or moved too slowly to lower them, but heading off an economic slowdown has been a fundamental part of OPEC policy.

Why higher prices haven't cut demand

But recently, higher global oil prices haven't reduced global demand for oil or pushed economies into recession. In its Sept. 12 projections, the International Energy Agency cut its estimate of global oil demand for the end of 2007 to 85.9 million barrels a day, but that is still 1.7% higher than demand in 2006. For 2008, the agency is projecting a 2.4% increase in demand.

We're less energy intensive

You already know part of the reason for that. The developed economies of the world have become a lot less energy intensive over the past three decades. For example, in the United States, energy use per unit of economic production (gross domestic product) fell by 28% from the OPEC oil embargo of 1973 through 1995.

Higher oil prices were responsible for much of that decrease in energy use. From 1995 through 2004, energy use per unit of the economy fell an additional 26%. This time the decline had less to do with energy prices, which plunged at the beginning of that period, than with the steady shift of the U.S. economy from manufacturing to service industries. The same trend shows up in Europe and Japan.

Because these economies use so much less energy per unit of GDP than they did 30 years ago, they're a lot less sensitive to increases in energy prices. Energy is simply a smaller part of the cost of doing business in these economies for most companies.

Rising economies relatively immune

The other part of the story that you probably know involves the developing economies of China, India and the rest of the rapidly industrializing world. Between 2000 and 2006, when global oil demand grew by 8 million barrels a day, growth from China alone accounted for about 32% of the total increase, according to the International Energy Agency. (The United States accounted for 12.5% of growth.)

Energy use in these developing economies has also been relatively insensitive to rising oil prices. Some developing economies -- China is the most important example -- are mixes of command-style and free-market economies where the government sets prices and determines profit goals.

Also, these economies are showing their own improvements in energy efficiency, and, most important, when an economy is growing at 11% a year, breakneck revenue growth overwhelms concerns that higher energy costs might cut into profit margins. Total profit is growing so fast that nobody worries much if margins are falling.

Subsidies encourage higher consumption

But there's a third part of the global energy demand story that hasn't received much attention until lately -- and it explains why higher oil prices haven't slowed global economic growth more rapidly and why OPEC is getting badly beaten by the energy traders these days.

Remember that I said that China had accounted for 32% of global growth in oil demand from 2000 to 2006 and that the U.S. had accounted for 12.5%? Well, there's another group of countries that, when it comes to global growth in oil demand, has been more important than the U.S. and only slightly less important than China. From 2000 through 2006, OPEC countries themselves accounted for 22% of global growth in oil demand.

In these OPEC countries, because oil consumption is so heavily subsidized, either directly in the consumer market or through government subsidies to energy-intensive industries, the rising market price of oil isn't felt much at all. Though higher market prices for oil are putting pressure on government budgets in these countries -- those subsidies cost money -- they have almost no effect on energy consumption.

From 2000 through 2006, oil consumption by OPEC countries climbed by 1.8 million barrels a day, or 29%. Consumption is projected to climb 400,000 more barrels a day this year. OPEC consumption has been growing at 2.5 times the rate of global consumption.

By the end of this year, consumption growth in OPEC countries will just about wipe out all the 2.2 billion barrels a day in increased production that OPEC has added since 2000.

Little reason for trend to change

Traders are right to assume that this trend isn't about to reverse anytime soon. Saudi Arabia and Iran are determined to use their oil riches to build energy-intensive economies. Venezuela, Mexico and Iran use higher oil revenue to fund their governments and to subsidize prices for everything from gasoline to pharmaceuticals to food. Young and increasingly well-off populations in these countries want the energy-consuming trappings of wealth that are already enjoyed in the developed countries.

And because subsidized domestic market prices for oil and gasoline are so low in OPEC countries, there's little incentive for improving energy efficiency or switching to other fuels.

As oil prices go up, the economies of the OPEC countries boom. That increases consumption in OPEC countries, which drives up oil prices and stretches out the economic boom. Which drives up consumption. Which sends oil prices up again.

I don't know whether you want to call this a vicious or a virtuous cycle, but a cycle it is, and it is clearly pointing to higher oil prices unless the Saudis can pull a couple of million barrels of production a day out of their hats.

The oil speculators have made a pretty good bet.

OPEC's raising output

2007-09-14T00:51:00.000-07:00

Myra Saefong's Commodities Corner
OPEC's raising output, but oil prices rally anyway
By Myra P. Saefong, MarketWatch
Sep 11, 2007

It's a bit of a mystery why crude futures closed at a record level Tuesday, even after some of the world's biggest oil producers agreed to a hefty increase in oil output levels.

At a meeting in Vienna on Tuesday, the Organization of the Petroleum Exporting Countries agreed to raise its production level by 500,000 barrels per day, effective Nov. 1.

It wasn't clear, at first, from which production level the increase would be made from.

OPEC's official output quota for 10 of its 12 members was at 25.8 million barrels per day, but the U.S. Energy Department said OPEC's actual output in July, excluding Angola and Iraq, was at 26.7 million barrels per day.

Then news reports emerged with the new official OPEC quota of 27.2 million barrels -- which implies that the cartel is recognizing that it's been producing above its target.

OPEC "'formalized' ... their current overproduction, which was roughly 900,000 barrels per day. Then on top of that, they added 500,000 barrels per day in new production," said Kevin Saville, a managing editor at Platts, who is on site at the meeting in Vienna.

"So, on its face, this wasn't just an empty gesture from OPEC," he said. "It is saying it will add 500,000 barrels per day of new oil on the market from Nov. 1."

But exactly how much of that 500,000 barrels per day will actually hit the market remains to be seen," said Saville.

Carefully worded

Obviously, OPEC raised production because members fear a slowing in the economy and they're trying to keep prices down, said Phil Flynn, a senior analyst at Alaron Trading.

But if the Fed cuts interest rates and the economy isn't slowing as much as people think, then energy demand will remain strong and the market will need more supply, he said.

Given that, the oil market probably rallied because the economy may be stronger than was originally thought, "taking away the thunder from the OPEC increase," he said.

It's all "fuzzy math," on the part of OPEC, he said. It all "comes down to what OPEC thinks their production is, versus what it actually is." And "they're admitting that they're overproducing."

The closing speech Tuesday from Mohamed al-Hamli, president of the OPEC conference and energy minister of the United Arab Emirates, seemed to be carefully worded.

"The conference decided to increase the volume of crude supplied to the market by OPEC member countries, excluding Angola and Iraq, by 500,000 barrels per day," he said.

So traders are realizing that it's not just a "paper increase," said Flynn.

Indeed, based on the news reports, "the move set for Nov. 1 is no longer a symbolic one, but an actual agreement to increase current production figures," said Neal Ryan, a manager and market analyst at Ryan Oil & Gas Partners.

"That being said, it's probably already been priced into the market at this point, as most were hoping to see a number closer to 1 million vs. 500,000," he said in emailed comments.

Difficult decision

Still, it wasn't any easy decision to make in the first place.

"OPEC was between the proverbial rock and a hard place," said James Williams, an economist at WTRG Economics. "U.S. petroleum stocks have been falling. Demand increases in the fourth quarter and without an increase, a shortfall was possible late in the year."

Williams points out that the timing of the increase for November matches the beginning of the peak demand season.

And "by increasing production, OPEC can avoid some of the blame for a recession if it comes," he said.

But at the same time, Williams warned that the market should expect the actual production increase to exceed 500,000 barrels per day.

"While high oil prices are often blamed for causing recessions, recessions usually cause a drop in oil prices and pose the greatest downside risk to price," he said.

Then again, maybe it's all about OPEC "feeling the 'subprime crunch,'" said Anthony Sabino, a professor of law at St. John's University whose legal practice includes oil and gas law.

"Clearly, the oil-exporting nations, who so desperately depend upon 'petro' dollars, euros, and yen, sense that the tightening of credit will cool off the economy and slacken demand," he said in emailed comments.

As such, "the per-barrel price of crude is too high to sustain current sales and inflows of dollars from the oil consuming nations," Sabino said.

By opening the taps wider, OPEC "seeks to drop prices in order to stay marketability in a jittery economic climate," he said.

Meaningless move?

In the end, the decision could just be a meaningless move.

OPEC's quota decision likely means nothing, said Charles Perry, chairman of energy-consulting firm Perry Management.

"Other than the Saudis, the rest of OPEC sort of set their own quotas," he said. "But most are near capacity, so they do not have room to go any higher."

"The real story in all of this is the world is at or near maximum capacity, and will be until a lot of additional production is developed," said Perry.

If OPEC's talking about a target of 27.2 million, then it's already close to its capacity, excluding the Saudis, he said. "Just about everyone is skeptical of OPEC increasing their production very much" with members near their peak production.

OPEC quota level vs. production

2007-09-12T23:47:00.000-07:00

OPEC quota level vs. production

The production values for the remainder of 2007 are as follows:
August through October are given the same level as July(26.7 mbpd). November and December are July's level plus 500,000 barrels per day (amount of September 11th effective increase).

Revision: According to the Marketwatch report I have posted above, OPEC has posted an official quota of 27.2 mbpd for November. There might be more revisions coming as the news reports get sorted out.

This article from Rigzone and Platts has a table with August production numbers. It shows total OPEC-10 production as 26.79 mbpd.

Oil Rises to 6-Week High

2007-09-10T16:03:00.000-07:00

Oil Rises to 6-Week High on Signs OPEC Will Keep Output Quotas
By Mark Shenk
Sept. 10 (Bloomberg)

Crude oil rose to a six-week high on speculation that OPEC ministers will maintain production targets when they meet tomorrow in Vienna.

Representatives from members including Iran, Kuwait and Qatar said in the past week there's no need to increase quotas that were set last year. Some Persian Gulf producers are discussing an increase, two delegates said today.

``The consensus remains that OPEC will do nothing tomorrow,'' said Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Connecticut, energy consultant. ``There was fresh discussion about a production increase today, but opposition from Iran and Venezuela is too strong for this to occur.''

Crude oil for October delivery rose 79 cents, or 1 percent, to settle at $77.49 a barrel at 2:49 p.m. on the New York Mercantile Exchange. It was the highest close since July 31. Prices are up 17 percent from a year ago. Futures touched $78.47 at 3:54 p.m. in New York, the highest intraday price since reaching a record $78.77 a barrel on Aug. 1.

`Bullish Mode'

``Technically the market is still in bullish mode,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``We're unable to maintain downward momentum. There were many opportunities for the bears to take prices lower but they failed.''

A 500,000 barrel a day quota increase will be discussed during the meeting and the timing of any increase remains undecided, one of the delegates said. The second delegate said he doubted other OPEC members would agree to such an increase. Both officials declined to be identified before the start of official talks at the group's Vienna headquarters.

``There was speculation that Kuwait, Saudi Arabia and/or the Emirates would ride to the rescue of the Fed and propose that quotas be increased,'' Beutel said. ``If they raise production the Fed can forget about inflation and concentrate on fighting what may turn into a recession.''

Two Federal Reserve bank presidents suggested that the U.S. economy is weakening after the labor market shrank in August, and that the housing market shows no sign of recovery.

`We Can Wait'

``There is no reason to increase output; the market is well supplied,'' Venezuelan Oil Minister Rafael Ramirez said today in an interview. ``We can wait until December.''

Any quota change would be viewed as a surprise. All 23 oil traders and analysts in a Bloomberg survey last week said they expect OPEC to leave its collective target unchanged.

``It's odd that the Saudis are completely silent ahead of this meeting,'' said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. ``I think it is likely they will float a proposal to increase quotas, probably 500,000 to 1 million barrels a day. While I don't think it goes anywhere, it will focus the discussion on the possibility for quota increases later in the year.''

Saudi Arabian Oil Minister Ali al-Naimi declined to comment to reporters in Vienna this morning. Saudi Arabia is the world's biggest oil exporter and the most influential member of OPEC.

OPEC wants respectability

2007-09-10T13:00:00.000-07:00

The Energy Report
Phil Flynn
September 10, 2007

OPEC wants respectability. All right Ali, here's your chance. In the past I have compared Ali al-Naimi, the de Facto leader of the OPEC cartel, to Alan Greenspan when he was Federal Reserve Chairman. Let’s face it, Mr. Naimi has relished his role as sort of the central banker of oil. Mr. Naimi is the Saudi Oil Minister and in truth is the most influential man in the OPEC cartel. He has tried to bring a certain degree of respectability to the business of price-fixing and collusion.

Of course if you want to be compared to Alan Greenspan you have to learn to make the tough decisions and inspire others to go along with you. There are reports that Mr. Al-Naimi actually favors an increase in oil production at tomorrow's OPEC meeting but does he have the will and power to make his case to the other members who fear an output increase? There is little doubt that Ali Al-Naimi is an impressive character but does he have what it takes to lead at this important moment in OPEC history?

OPEC members we have heard overnight such as Kuwait, Iran, and Libya oppose an oil output increase. Can he make the tough call and get the rest of the cartel to realize that this might be the most important decision the cartel may make?

If you want to act as a central banker of oil what you should do is add more oil to the market in signs of economic stress. If there is more oil on the market oil prices should go lower and it should make it easier for the economy to avoid a recession. And with the US economy in scary shape after the much worse than expected jobs report last Friday and the chances of a recession rising does Mr. Naimi have the ability to react to an obviously dangerous economic situation?

Yet the cartel has other ideas. OPEC President Mohammad al-Hamli says that despite the tightening of credit in the US the world economy was growing strongly and should continue into next year. But is he as good a judge about the heath of the economy as al-Naimi? Hasn’t much of the growth around the world been fed in part by the US consumer? And wouldn’t the US consumer be better off if the price of oil was trading lower than the $76.00 per barrel area? Why does OPEC not see that a US recession would be a devastating blow to the prospect for oil demand. Is it just greed or is it fear?

Well it’s probably both but the fear was best expressed by Qatari Oil Minister Abdullah bin Hamad al-Attiyah who asked, “What is an increase in oil production, and nobody will buy it?".

In other words, they fear a price collapse if they raise production and demand still falls. They still have nightmares of when they raised production ahead of the Asian financial crisis that nearly bankrupted many in the cartel. In the long run that price drop helped create an environment that lead to one of the largest price run ups in the history of the world oil markets.

Why Saudi Arabia Favors Increasing OPEC's Output

2007-09-10T12:08:00.000-07:00

Why Saudi Arabia Favors Increasing OPEC's Output...Officially
September 10, 2007 11:20:AM ET
By Tom Waterman
http://www.oilintel.com/

There's an increasing buzz surrounding the OPEC meeting in Vienna tomorrow that Saudi Arabia -- easily the most influential of cartel members, will make a pitch to increase output in the fourth quarter.

Practically every other cartel member, addicted to the petro-dollars now flowing through its coffers, does not agree. They all point out that crude oil supplies are growing and that any increase in OPEC output would collapse prices.

It's all a mirage anyway as crude supplies are building and OPEC is selling beyond output quotas, by anywhere from 650,000 to 850,000 barrels per day. So what's all the fuss?

We need to go back 10 years or so when OPEC looked at the commodities markets as just another financial instrument that would bow to its will. They never imagined that the price of oil would be set daily in New York or London, instead of Riyadh or Tehran.

Saudi Arabia understands that the explosion in electronic trading, particularly ICE in London, where regulations and oversight are virtually non-existent, speculators can control the price of oil. All it takes is enough money to force a position, and the staying power to see it through, and influence the rest of the speculative community.

There are rumors that some OPEC members, through third party agents, are in fact participating in the London Brent futures market. The suspects are Iran, Venezuela and perhaps Nigeria. What better way to push markets in a favorable direction, using the petro-dollars consumers pay.

It's not clear if Saudi Arabia participates, but it would not be surprising if all OPEC members have a role in conjunction with huge banking firms in manipulating oil prices. The financial ability of OPEC members cannot be underestimated. It would explain how prices can remain artificially high for such an extended period of time.

It also makes sense from the fundamental side. OPEC's power to influence oil prices relies on a joint commitment to restrict supplies in order to prop up prices. The problem with this method is the cartel itself. They simply cannot present a unified front when cutting production. Simply put, they cheat. Some more than others, but every OPEC member will not turn away buyers, especially with prices as high as they have been for the past two years.

There are many reasons the Saudis would favor an increase in output, not the least of which is a means to protect market-share as glut conditions approach. Saudi Arabia is concerned that it is losing ground in some of its Asian markets, and it wants to protect its current U.S. market-share, among other markets.

Through the first six months of 2007, Saudi Arabia supplied 10.7 percent of U.S. imported crude oil. They would prefer to supply about 11.5 percent, a share achieved just once in 2007, in January. In May and June, Saudi Arabia supplied 11.4 percent of U.S. imported oil -- acceptable levels.

However, two countries currently exempt from output restrictions are Iraq and OPEC's newest member -- Angola. Iraq will not have a quota until it can sustain production levels at predictable rates, which might not be for another 5 years. Nevertheless, Iraq is gradually increasing production and its share of the U.S. import market is growing. In May, Iraq supplied the U.S. with 10.6 million barrels of crude oil, or 2.4 percent of total imports. In June, Iraq supplied the U.S. with 17.2 million barrels, or 4.2 percent of total U.S. imports.

Saudi Arabia, while sustaining an 11.4 percent of the U.S. market in May and June, it supplied 4 million less barrels of crude in June than in May.

Angola, the other OPEC member that has no output quota, has been erratic in its supplies to the U.S. The range has been a low of 12.9 million barrels in February (3.8 percent) to a high of 21.4 million barrels in May, or 4.9 percent of the U.S. import market. Angola has also competed successfully for some of Saudi Arabia's Asian customer base.

This is the main reason that Sheik Ahmed Fahd Al Ahmed Al Sabah, who is also Kuwait's oil minister, had talks with Angolan officials about how they will be assigned a quota in the near future. Just as they are ready to bring new production online in early 2008, Angola does not like the timing of being assigned a quota. It seems that the prestige of becoming an OPEC member might not be worth the potential financial sacrifice.

We expect that a quota will be postponed until the second quarter of 2008, after new deepwater production is flowing and its levels have risen.

But there is another reason that Saudi Arabia might favor increasing production in the fourth quarter. Prices are too high. The Saudis always look beyond today and tomorrow. They realize that prices approaching $80 per barrel, while offering tremendous profits, also carry a risk. The risk is a weak U.S. economy that seems to heading toward a possible recession, which will mean a broad worldwide economic slowdown. Perhaps even more important than the Federal Reserve reducing interest rates by a half point would be oil prices that fall to the low $60s.

Saudi Arabia understands that current prices are artificially high, and simply making statements that there is plenty of crude oil available is not enough to overcome the powerful spec money that controls the price of oil. Something else must be done to curb the speculative direction oil is tracking.

There are other reasons to bring prices down. The political battle of wills between Iran and Saudi Arabia as each country tries to influence policies in Iraq should not be underestimated. Iran needs money as it pours support into Shiite dominated Iraq. Saudi Arabia provides cash for the Sunni contingent, trying to carve out its slice of Iraq. The Saudi vault is virtually limitless while Iran works paycheck to paycheck. Every petro-dollar Iran can grab, a certain percentage will work to extend its influence.

As Iran's influence in the region grows, it undermines the Saudi royal family, and beyond all other factors, the royal family wants to remain in power.

This is why I suspect that Saudi Arabia will try to impose its will on the OPEC meeting tomorrow. It's not clear if the Saudis have the will to demand a direction against price hawks like Iran, Venezuela, Libya and Nigeria, but the signals are that the Saudis will either nudge the cartel to announce increases in the fourth quarter. The alternative is that Saudi Arabia could open the spigots and single handedly increase worldwide supplies.

In a dangerous time, Saudi Arabia seeks to limit Iran's influence, and now may be the moment to do so.

Saudi Crude Oil Market Share

2007-09-05T03:39:00.001-07:00

Saudi Arabia Crude Oil Market Share Chart 1974 - 2007

data source: EIA Crude including lease condensate monthly numbers

Saudi Aramco Changes Oil Prices

2007-09-05T01:01:00.000-07:00

Saudi Aramco Cuts Oil Prices to U.S.; Raises for Asia, Europe
By Nesa Subrahmaniyan
Sept. 5 (Bloomberg)

Saudi Aramco, the world's largest state oil company, cut prices of its crude oil
to be exported to the U.S. in October. It raised prices for Asia and the
Mediterranean, while increasing for two grades to Europe.

Aramco cut
prices of its Arab Light, Arab Medium and Arab Heavy grades it sells to the U.S.
by between 5 cents and 90 cents a barrel, the Dhahran, Saudi Arabia-based
company said in a faxed statement today.

Prices to the U.S. are set
against the West Texas Intermediate benchmark. U.S. refiners would have to pay
minus $5.10 a barrel for Arab Light, minus $7.65 a barrel for Arab Medium and
minus $10 a barrel for Arab Heavy in October. The oil producer kept the discount
of its Extra Light grade unchanged to the U.S. at minus $2.65 a barrel.

For Asian customers, Aramco said it raised the prices of all its grades.
It raised Arab Super Light by 50 cents to a premium of $6.45 a barrel, and the
premium on Extra Light was increased 75 cents to $4.25 a barrel.

Aramco
boosted the premium on Arab Light by 60 cents to $1.35 a barrel, and narrowed
the discounts for Arab Medium by 30 cents to minus $1.05 a barrel and by 25
cents to minus $3.35 a barrel for its Arab Heavy grade. Asian prices are quoted
in relation to the average of Oman and Dubai grades, the two Arabian Gulf
benchmarks used by Asian oil refiners and traders.

Refiners in the
Mediterranean would have to pay more for most Saudi Arabian crude oil shipments
in October. The premium for Arab Extra Light was raised by 40 cents to $1.20 a
barrel, while the discounts for Arab Light and Arab Medium widened by 35 cents
and 5 cents to minus $2.15 a barrel and minus $3.65 a barrel. The discount for
Arab Heavy was cut further by 25 cents to $5.30 a barrel.

European
Prices

For its European customers, Aramco raised prices for shipments of
Arab Extra Light by 20 cents to $1.10 a barrel and narrowed the discount for
Arab Light by 15 cents to minus $2.45 a barrel, the oil producer said. The
discounts for Arab Medium and Arab Heavy grades were widened by 10 cents and 30
cents to minus $4.10 a barrel and minus $5.55 a barrel.

Mediterranean
and European prices are expressed as a differential to Intercontinental
Exchange's weighted average of North Sea Brent crude oil. All prices are
free-on-board, where the buyer has to pay for shipping costs.

Saudi Arabia is top oil supplier to China

2007-08-24T00:35:00.000-07:00

Saudi Arabia is top oil supplier to China
BI-ME and Bloomberg
22 August 2007

Saudi Arabia was the top supplier of crude oil to China in July, beating Angola, Oman and Russia as the Middle Eastern country increased exports to gain from demand in the world's fastest-growing major economy.

Saudi Arabia, the world's biggest oil producer, exported 2.33 million metric tons of crude oil to China last month, about 548,677 barrels a day and 57% more than the same period in 2006, the Beijing-based Customs General Administration said today.

Angola, the second-largest supplier to China in July, shipped 2.2 million tons, a 28% increase from last year.

China's crude oil imports surged 39% to a record in July, according to customs data released earlier this month. Oil imports by the world's second-biggest energy user have tripled in the last five years as production from domestic fields failed to keep pace with demand.

Oman, Russia and Iran were among China's top five suppliers in July, shipping 1.56 million, 1.27 million and 1.24 million respectively.

Saudi Arabia was also China's biggest crude supplier in the first seven months of this year as sales from the kingdom increased by 6.8% to 14.32 million tons.

Imports from Sudan surged more than 12-fold to 1 million tons in July after China National Petroleum, the country's largest oil producer, increased output of the Dar Blend crude oil from its production-sharing field in the African nation. The field started production last August.

China imported 14.83 million tons of crude last month. Shipments in the first seven months rose 15% to 96.37 million tons.

Aramco invites engineering bids for refinery

2007-08-20T08:53:00.000-07:00

By Oliver Klaus
Aug 20, 2007
DUBAI (MarketWatch)

Saudi Arabian Oil Co. has invited engineering firms to bid for a contract to help it build an estimated $8-billion refinery in eastern Saudi Arabia, people familiar with the plans said Monday.

Saudi Aramco, the world's largest national oil company, has invited international engineering companies to bid by Sept. 15 for the contract to carry out early engineering for and manage the construction of the new refinery, the sources said.
The plant, known as East Coast refinery, is the fourth new facility planned in the kingdom and will boost total domestic crude oil refining capacity to above 3.5 million barrels a day by 2012, more than double the U.K.'s.

The refinery, due for completion around late 2011, will process 400,000 barrels a day of Saudi crude and will be at Ras Tanura on the Persian Gulf, already home to the country's largest refinery with a capacity of 550,000 barrels a day, the sources said.

Aramco will meet selected contractors Monday for a project briefing in Bahrain, the people said.

Companies including KBR Inc. KBR, Foster Wheeler Ltd. FWLT, and WorleyParsons Ltd. (WOR.AU) have bid for similar contracts in the kingdom.

The new project is aimed at meeting fast-growing demand for refined products from the local power and industrial sectors.

OPEC Posts Record 2006 Oil Revenue

2007-07-31T23:23:00.000-07:00

OPEC Posts Record 06 Oil Revenue; Lags Western Cos by Half
by Spencer Swartz
Jul 31, 2007

The Organization of Petroleum Exporting Countries posted nominal record revenue of nearly $650 billion last year on high crude prices and increased oil production, although its sales were just half those of the top U.S. and European energy firms, the producer group said in a report released Tuesday.

But in an indication as to why it may be keeping a tight rope on future production capacity, the report showed OPEC's base of economically recoverable oil reserves last year was flat if new, higher estimates from troubled OPEC producer Venezuela are stripped out, the worst growth in this key metric in recent years.

The world's top five publicly traded oil companies, led by ExxonMobil Corp. (XOM) of the U.S., collectively raked in total revenue last year of $1.36 trillion, up 6% on the year, OPEC said in its annual statistical report released Tuesday.

The contrasting numbers underscore the financial muscle the top Western oil companies have relative to OPEC states even though those same states control nearly three-quarters of the world's proven oil reserves.

Such was the tailwind of higher oil prices that Saudi Arabia, OPEC's biggest producer and exporter, saw its oil revenue jump a fifth to $193.7 billion, even though it pumped and exported less oil last year compared with 2005, OPEC said.

Oil prices touched a record high of near-$79 a barrel last July.

The OPEC sales numbers, representing 22% revenue growth, may stoke anger by consumers shouldering high energy costs caused by tight gasoline supplies, unexpected production shutdowns in Nigeria, and OPEC production cuts the past year.

U.S. lawmakers have proposed a largely symbolic bill that would permit law suits against OPEC's 12 members under U.S. antitrust laws.

Companies such as ExxonMobil and Royal Dutch Shell PLC (RDSB.LN) typically have more business units and operate in more regions of the world compared with most OPEC states, although this has been changing the past decade, but they own just a small percentage of the world's proven oil reserves.

OPEC's annual report didn't disclose net profits, but OPEC states earn handsome returns on the oil they produce because of low production costs.

"There might be some who are critical of these numbers, but the money OPEC is earning allows these countries to invest in new energy projects, like refineries, and import more goods," said Manouchehr Takin, senior analyst at the Centre for Global Energy Studies in London. OPEC nations imported $447.3 billion worth of goods last year, up 13% on the year.

The report also didn't disclose how much OPEC states invested in new exploration programs last year, although OPEC Secretary General Abdalla Salem el-Badri told Dow Jones Newswires in June that members had earmarked $130 billion-worth of capacity expansions that would add a net 6.7 million barrels a day to current oil output by 2012.

Reserves Languish

Venezuela, where oil output has languished this decade because of underinvestment, has tightened its grip the past five years on foreign operators with new taxes and operating restrictions, and few energy analysts believe the country can tap its costly and difficult-to-exploit heavy oil reserves without foreign technology and know-how.

After relatively stable to modest increases the past decade, Venezuela's proven oil reserves jumped last year by nearly 9% to 87.04 billion barrels, according to OPEC's report. It didn't explain why.

But backing out much of that rise because of the state of Venezuela's energy sector, OPEC's total proven oil reserves rose by a mere 0.2% last year, the lowest rate of increase this decade.

Saudi Arabia's crude asset base changed little at about 264.3 billion barrels, although the kingdom is currently investing billions of dollars to boost its production capacity to 12.5 million barrels a day by 2009, up about 11% from current levels.

Including the big additions of heavy oil Venezuela added to its reserves last year, OPEC's proven oil reserves in 2006 rose 1% to 922.5 billion barrels, representing just over 77% of the world's total.

OPEC's daily production last year averaged 32.07 million barrels, up 3.2% on the year. Saudi Arabia's daily output averaged 9.208 million barrels, about 145,400 barrels fewer than in 2005, while Saudi exports averaged 7.029 million barrels, nearly 180,000 barrels less than last year.

Aramco to invite bids for Manifa developments

2007-07-31T16:56:00.000-07:00

Saudi Aramco to invite bids for $10 billion Manifa developments
Business Intelligence Middle East
July 31st, 2007

SAUDI ARABIA. Saudi Aramco is expected to invite companies in August to help develop Manifa oil field, with a potential production of 900,000 barrels of oil a day, sources familiar with the company's plans said earlier this week.

Aramco, the world's largest oil supplier, plans to invite prequalified companies to bid for an estimated US$3 billion worth of contracts on the company's largest-ever offshore project.

The estimated US$10 billion Manifa development programme aims to add 900,000 barrels a day of heavy crude, 120 million cubic feet a day of gas and 50,000 barrels a day of condensate to Aramco's production by mid-2011.

Manifa's heavy crude will be exported from Aramco's Al Juaymah and Ras Tanura terminals in Eastern Saudi Arabia. The gas and the condensate will be processed at the Khursaniyah gas plant.

The project also includes construction of four pipelines, a water supply system and oils and gas processing facilities.

The tender documents for the project were originally due to be released in June or July but have been delayed without explanation, sources familiar with the Aramco's tender told Dow Jones Newswires.

Companies including Bechtel Group, Fluor Corp, JGC Corp and Technip in late May submitted prequalification documents to Saudi state-owned company. They are still waiting for final to bid, sources said.

In February, Aramco awarded an estimated US$1 billion contract to Belgium contractor Jan De Nul for the Manifa project's offshore portion, covering dredging works in the Persian Gulf.

Middle East oil producers are spending income generated from four years of high oil prices on expanding and upgrading their crude oil production capacity to meet rising global demand, particularly from fast-growing Asian economies.

Saudi Arabia is the world's biggest oil exporter. The Kingdom is working to increase current output of almost 11.0 million barrels a day to 12.5 million barrels a day by 2009.

Ghawar Production Profile

2007-07-31T01:09:00.000-07:00

Ghawar Production Profile 1960 - 2007 Chart
Saudi Arabia, Ghawar, Oil Production, OPEC, oil, Peak Oil, chart, graph

Gulf Oil Revenues to Stay in Dollars

2007-07-27T12:22:00.000-07:00

Gulf oil revenues to stay in dollars
Reuters
26 July 2007

Core Gulf producers receive 100 % of their oil revenues in dollars and politics makes it unlikely that will change despite the U.S. currency's weakness, analysts said on Wednesday.

OPEC members Saudi Arabia, the United Arab Emirates and Kuwait between them pump about 13.5 million barrels per day of oil, nearly 16 % of the world's supply.

Record revenues from high prices have fuelled an economic boom in the region, but the weak dollar has eroded oil producers' purchasing power in currencies not pegged to the U.S. greenback. The dollar hit an all-time low against the euro earlier this week.

The potential political fallout from the impact on the dollar of any change would likely keep the region's oil sales in the U.S. currency, said Steve Brice, regional economist at Standard Chartered.

"The U.S. would probably be concerned about major producers doing this," said Brice. "Currency reform is much less politically sensitive. It's another thing to move oil receipts away from dollars. That's a very big step."

Kuwait allowed its dinar to appreciate 1.7 % against the dollar on Wednesday, encouraging investors to bet that other Gulf Arab oil producers would review their pegged exchange rates.

But while Kuwait takes small steps to shield its economy from the dollar's weakness, oil revenues in the world's seventh-largest oil exporter will stay tightly bound to the U.S. currency.

"All our oil revenue is in dollars and there is no plan to change this," said a Kuwaiti source.

OPEC's second largest producer Iran caused a stir in financial markets when it asked Japanese oil buyers to pay in yen rather than U.S. dollars two weeks ago. That move was in part politically motivated as the row drags on with the United States over Tehran's nuclear ambitions.

Libya and sometimes Syria also ask for payments in other currencies, an industry source said. But Gulf Arab producers have shown little interest.

"ENTRENCHED IN DOLLARS"

Analysts said it would make economic sense for producers to diversify payment denominations, as it would reduce the volatility associated with the close ties to one currency and better reflect the region's trade relationships.

"The trade partners of the big oil producers have changed," said Julian Lee, senior energy analyst at London's Centre for Global Energy Studies.

"The European Union and Asia are bigger partners than they were and that would suggest the idea of diversifying revenues to take that into account. But breaking the price of the oil and the dollar may be a step too far."

Kuwait gets about 38 % of imports from the euro zone, the UAE 39 % and Saudi Arabia 35 %, according to Calyon.

Anything that weakens the dollar will also hurt the region's massive dollar-weighted investments.

Gulf Arab governments save most of their oil wealth in investment funds, which do not make public the currencies they hold.

Standard Chartered estimates Gulf Arab central banks hold $75 billion to $80 billion in foreign exchange reserves, while $1.5 trillion is in public sector investment funds.

All the major benchmarks that producers use for oil contracts are set in dollars, which also makes it difficult to use any other currencies.

"The oil market is entrenched in dollars," said one industry source. "People are buying oil years out in dollars and it is difficult to see any of those people unwinding their positions and buying oil in any other currency."

IEA Oil Market Report July 2007

2007-07-27T02:58:00.001-07:00

Saudi Arabian crude supply is revised up to 8.7 mb/d for May, with a modest cut to below 8.6 mb/d estimated for June. Latest available JODI (Joint Oil Data Initiative) data are backed up by upwardly revised tanker sailing data for May. Weaker earlier May estimates had been based on lower domestic refinery runs due to refinery maintenance. While higher June refinery runs are implied by lower anticipated refinery maintenance, early indications are of an offsetting cut in crude exports. June estimates, as for all the OPEC countries, remain subject to verification as more complete tanker sailing data become available. However, comments from Saudi Oil Minister Naimi in early July tended to reinforce perceptions of production around 8.6 mb/d. Nor has there been any sign of significant change in Saudi production policy for July and August, with term liftings reportedly remaining broadly stable at June levels.

Crude capacity for Saudi Arabia is seen by this report rising to 10.9 mb/d by end-2007 and 11.4 mb/d at end-2008. The Khursaniyah project is likely to start up in December 2007, reaching 500 kb/d of Arab Light capacity by 2008, alongside some 300 kb/d of gas liquids. Initial volumes of new extra light crude are also expected from the Shaybah field expansion and the Nuayyim project by the end of 2008. The two fields combined will eventually add a gross 300 kb/d to Saudi crude capacity. Capacity additions in Saudi Arabia for now are focussed on lighter/sweeter crude grades, before the next major heavy/sour increment expected from the Manifa project from 2011.

IEA Oil Market Report July 2007, pg. 20

OPEC oil output to rise in July

2007-07-26T15:40:00.000-07:00

OPEC oil output to rise in July:
Petrologistics
Jul 25, 2007

OPEC oil output is expected to rise this month due to higher supply from members including Nigeria, Iraq and Angola, a consultant said on Wednesday.

OPEC's 10 members subject to output limits, all except Iraq and Angola, are expected to pump 26.9 million bpd, up from 26.8 million bpd in June, said Conrad Gerber, head of Petrologistics, which tracks tanker shipments.

The estimate, while showing rising supply in some OPEC countries, indicates top world exporter Saudi Arabia is keeping a cap on output in spite of a jump in oil prices towards a record high above $78 a barrel.

"There's no major opening of the taps," Gerber said. "They fear that if they opened the taps, prices would slide."

Nigeria is raising supply in July by about 100,000 bpd to 2.12 million bpd, Gerber said. The increase reflects fewer disruptions to the country's oil industry from militant attacks in the Niger Delta.

Iranian oil output is also on the increase -- climbing by 50,000 bpd to 3.95 million bpd, according to the Geneva-based company.

Overall supply from the 12-member Organization of the Petroleum Exporting Countries is set to rise 300,000 bpd to 30.7 million bpd, Petrologistics said, as Iraq and Angola pump more.

Iraqi output is on course to reach 2.08 million bpd, up from 1.94 million bpd in June, because the country is exporting some Kirkuk crude from its northern fields.

Storage tanks at the Turkish port of Ceyhan receive sporadic deliveries of Kirkuk by pipeline from Iraq's northern oilfields. Iraq sold 3 million barrels for shipment in July, the first such sale since January.

Angolan output, rising steadily as new fields off the country's coast come on stream, is on course to climb by 30,000 bpd to 1.69 million bpd in July.

By contrast, output in Saudi Arabia, OPEC's largest producer, is expected to hold steady at 8.6 million bpd, Petrologistics said.

OPEC, source of more than a third of the world's oil, agreed to curb supply by 1.7 million bpd, or about six percent, last year in two steps. The second stage took effect from February 1.

Despite July's rise from the 10 members party to the output curbs, output remains lower than when OPEC started cutting production in November. OPEC said the 10 were pumping 27.5 million bpd before the cutbacks began.

The exporter group is next scheduled to met in September to decide production policy.

OPEC: Fair Oil Price $60-$65

2007-07-23T12:09:00.000-07:00

OPEC: Fair Oil Price $60-$65/Bbl; No Need to Up Output
by Ayesha Daya, Dow Jones Newswires
FWN Financial News 7/23/2007
URL: http://www.rigzone.com/news/article.asp?a_id=47988

The Organization of Petroleum Exporting Countries' head of research said Monday that a fair price for crude oil was between $60 and $65 a barrel, but said there was "no reason" for the group to raise output when it meets in September for its biannual gathering.

"I said in March that a fair price for oil was between $60 and $65. I still think this," Hasan Qabazard, OPEC's research director, told Dow Jones Newswires by phone.

He said he wasn't referring to any particular crude. "This is a range to account for the different crude qualities, not for one crude in particular," he said.

Oil prices have been climbing steadily this summer, touching 11-month highs of $76 a barrel last Thursday on falling gasoline stocks in the U.S. and strife in oil-producing Angola.

Crude fell slightly Monday on profit-taking by traders, with light crude on the New York Mercantile Exchange trading down 40 cents at $75.39 a barrel Monday, but the current price is at least $10 a barrel more than what Qabazard sees as fair. Brent crude is trading at an even higher level at more than $77 a barrel.

There are no signs that OPEC will act to contain the rally by deciding, when it next meets, to bring more crude onto the market.

"Now the price is quite high," Qabazard said. "But it has a premium in it because of refinery bottlenecks, and speculative money coming into the market," he said.

In this context, there is "no reason" for OPEC to decide to raise output at their next meeting in September, Qabazard said.

"We still believe there is no reason to raise production, because there is enough crude in the market and no takers for the crude. It will only go into stocks," he said.

Saudi 2010: Empire in the Making

2007-07-21T12:24:00.000-07:00

Saudi 2010: Empire in the Making
by Mohammed Aly Sergie
July 15th, 2007

[...]The recent oil boom has filled the coffers of all oil producing countries, and the largest producer received the greatest influx. According to the Economist Intelligence Unit, Saudi's GDP has nearly doubled since 2002 from US$118.6bn to US$347.3bn in 2006. While analysts debate the ‘peak oil' theory and look towards alternative sources of energy, Saudi Arabia continues to expand its current capacity and explore for more wells. With around 25% of global oil reserves and plentiful natural gas reserves, Saudi Arabia ranks fourth in the world in natural gas reserves, and Aramco claims that only 15% of the country has been "adequately explored for gas". Few analysts predict that oil prices will drop below US$60 per barrel over the next two years (oil is currently US$77 per barrel); oil and gas will remain the main source of revenue and the economic driver in the Kingdom.

The only player in oil production in Saudi Arabia is state-owned Saudi Aramco, the world's largest oil exporter. The company has been managing oil exploration and extraction for the Kingdom over the last 70 years and has become one of the largest state-controlled companies in the world.

In 2006, Saudi Aramco markedly enhanced its operations to achieve its goal of increasing crude oil production capacity to 12.5 million barrels/day (b/d) by the end of the decade. Underdeveloped fields throughout the Kingdom are coming on stream within the next two years which will triple the number of oil rigs in operation and should increase production by two million b/d.

Saudi Aramco is also increasing its gas exploration efforts. A myriad of onshore and offshore exploration and extraction is ongoing, which will go far to feed the voracious appetite for natural gas of power, desalination and petrochemical plants.

Natural gas is what brings us to another Saudi giant: Saudi Basic Industries Corporation (SABIC). While Aramco will invest nearly US$70bn in the petrochemicals industry in the next five years (the company recently teamed up with Dow Chemicals to build a US$20bn plant in Ras Tanura), SABIC has been a leader in the petrochemicals sector over the past 30 years, and is the largest non-oil producing company in the Middle East.

Not only is SABIC a regional giant, it is also a major global player. The company is among the world's market leaders in the production of polyethylene, polypropylene, glycols, methanol, and fertilisers, as well as the fourth largest polymer producer. Fuelled by impressive profits - profits rose to a record US$5.4bn in 2006, a 6% increase on 2005, while first quarter 2007 profits remained strong at US$1.7bn, an increase of 50% compared to the same period in 2006 - SABIC has gone on an aggressive acquisition spree[...]

full article

Opec 'needs to boost output in second half'

2007-07-21T12:17:00.000-07:00

Opec 'needs to boost output in second half'
21-07-2007

Opec should increase crude oil production in the second half of the year in a bid to alleviate high prices, the head of the US Energy Information Administration Guy Caruso said.He warned that inaction by the Organisation of Petroleum Exporting Countries could cause global inventories to fall too low. "They wouldn't be dangerously low, but low enough to apply an upward pressure on prices," Caruso said on the sidelines of a meeting of the National Petroleum Council."Based on our demand numbers, which may be slightly higher than Opec's...is that we thought we needed more production in the second half of the year or we were going to have very low inventory," Caruso said. Energy Secretary Samuel Bodman said earlier on the sidelines of the NPC meeting that he was concerned about high oil prices and the possibility that Opec might not increase supply.He said, however, that he was keeping an open mind about how much, if at all, Opec should increase output given that US market tightness had been more about low refining capacity that crude supply. "That may be changing," though, he added.While analysts suspect the group has delivered on about 1 million barrels a day of that cut, the output decrease has helped push oil prices higher at a time when strong demand is already providing support. Benchmark crude futures on the New York Mercantile Exchange ended up Opec this week issued fresh forecasts for oil demand and supply that show the implied daily consumption for its members' oil in the final three months of this year would outstrip their current supply by a hefty 1.15 million barrels.

(Source: Gulf News)

BP's recent production data

2007-07-04T02:56:00.000-07:00

BP's recent production data, and a different view of future world oil production trends
by Tom Standing
http://www.energybulletin.net/31585.html

Saudi Arabia and OPEC: First off, many people look at the recent trend of Saudi Arabian production and have expressed suspicion that the decline may be geologically based, rather than Saudi Arabia maintaining a balance between supply and demand. The statements and actions of OPEC over the last several months have made it clear that they are taking oil off the market in order to defend $60 oil. (The recent price for “OPEC Basket” oil was around $67.) Saudi Arabia is still the premier swing producer, maybe the only OPEC member who can vary production rates at their discretion. My guess is that this is a market-related reduction and that they could return to their high point of late last year and sustain that rate for many years. They have numerous projects on the board to raise productive capacity, so I would not be surprised if they eventually reach and sustain 10 million b/d. How much higher can SA go? God only knows; not even the most analytical Saudi oilmen can say with certainty. The timing of Saudi's return to producing at capacity, and their future development of capacity, depends on world demand, the ability of non-OPEC producers to increase capacity, and the price that OPEC chooses to defend.

Saudi production vs. OPEC quota 2001 to 2007 chart

2007-07-01T21:22:00.001-07:00

2001 to 2007 chart of Saudi oil production vs. OPEC quota.

Saudi production versus OPEC quota

2007-07-01T21:11:00.000-07:00

2004 to 2007 Chart of Saudi Arabia's oil production with OPEC quota.

OPEC to Maintain Its Current 30mbpd Output Level

2007-06-15T23:38:00.000-07:00

by Adam Smallman
Dow Jones Newswires
Jun 15, 2007

The Organization of Petroleum Exporting Countries said Thursday that there was no need for the group to inject further oil supplies into the market in the face of rising demand, an implicit rebuke to the International Energy Agency's call this week for urgent new supplies from the group.

In an unusual statement well ahead of its formal policy meeting Sept. 11 in Vienna, OPEC Secretary General Abdalla Salem el-Badri said 12-member OPEC, which currently meets 35% of the world's oil consumption, would maintain its daily output of 30 million barrels a day.

"However, considerable uncertainties continue to surround world oil demand and demand for OPEC oil," he added.

"But a combination of current high inventory levels and increasing OPEC spare capacity, which is expected to reach around 15% in the second half of this year, means there are adequate supplies available to cope with any upward revisions to oil demand forecasts."

In the statement, El-Badri continued, "OPEC notes oil markets remain well supplied and market fundamentals do not require any additional supply from the Organization at this time."

"OPEC will continue to monitor developments and is prepared to help mitigate any tightness which may emerge at any future stage," he added.

Without identifying the International Energy Agency directly, the producer group's statement appears to be a response to this week's hard-hitting report by the agency that warned of the prospect of a world oil supply deficit this year due to record demand, rising project delays and a reluctance by OPEC to ship more crude over the summer.

The IEA Tuesday raised its estimated daily need for OPEC's oil this year by half a million barrels to 31 million barrels, and expressed concern about its ability to offset demand with planned capacity expansions by the end of this year of just 700,000 barrels.

With the need for OPEC crude this year set to climb 2.5 million barrels a day, the challenge to OPEC "would appear to be a key impending market dynamic," the agency said.

"We need an awful lot more crude," IEA supply expert David Fyfe said at the time. "To us, the balance looks particularly stark at the moment."

El-Badri added that the group will keep a close eye on the state of the market, but noted that oil stockpiles held by industrialized nations are comfortable.

Stocks are some 34 million barrels above their five-year average and are at a record in Europe, with oil stockpiles in the U.S. 24 million barrels above their five-year average, he said.

Gasoline stocks Stateside are generally climbing, he noted, and OPEC's output of 30 million barrels a day will help keep stocks comfortable assuming "there is no significant change in market conditions."

El-Badri also said there were expectations of increased oil output from non-OPEC producers this year, a sharp contrast with the IEA's view.

The agency said this week that oil supply growth from non-OPEC producers is set to fall below the psychologically significant 1 million barrels a day this year, thanks to project delays, field exhaustion, and maintenance programs.

It signals the end to three consecutive quarters of plus-1 million barrels-a-day growth from non-OPEC suppliers.

"We're concerned about delays in new project start ups," the agency's Fyfe said, "and to be honest, they're proliferating."

Also, the medium-term picture for Russia, the world's largest oil producer, is one of stasis, with its output reaching a plateau within two years thanks to the uncertain investment climate under President Vladimir Putin and constraints in oil services.

The agency said the country's output may climb 7% to 10.6 million barrels a day by 2010 but then slip a little over the next two years.

The IEA also revised year-on-year world oil demand growth for this year significantly higher to 2%, against its 1.8% forecast last month, pushing outright demand through 86 million barrels a day for the first time.

Though well short of the 4% demand growth seen in 2004, it is double last year's growth despite consistently high oil prices.

Aramco to build $8bn refinery

2007-06-15T23:36:00.000-07:00

Aramco to build $8bn refinery
by Reuters
13 June 2007

Saudi Aramco, the state oil company of OPEC kingpin Saudi Arabia, has launched a project to build a new oil refinery, the Middle East Economic Digest (MEED) reported.

MEED said the refinery at Ras Tanura, with a processing capacity of up to 400,000 barrels per day (bpd) of Arabian heavy crude, will cost about $7 billion to $8 billion.

Saudi Aramco has a 550,000 bpd oil refinery in Ras Tanura in the east of the kingdom, the world's largest oil exporter.

Saudi Arabia Curbs Asian Shipments

2007-06-11T12:16:00.000-07:00

Oil Rises More Than $1 After Saudi Arabia Curbs Asian Shipments

By Mark Shenk
June 11 (Bloomberg)

Crude oil rose more than $1 a barrel after Saudi Arabia, the world's biggest exporter, told Asian refiners that it would curb shipments for a ninth month in July.

Saudi Aramco, the world's largest state oil company, will cut supplies of its Arab Light and Arab Heavy crude to refiners in Japan, China and South Korea by between 9.5 percent and 10 percent below their contracted volume, officials said. The Organization of Petroleum Exporting Countries last year pledged to cut supplies by 1.7 million barrels a day to support prices.

``I suspect that the Saudis are worried about rising inventories,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``They have been creamed a couple times when inventories have risen too high and they've lost control of the market.''

Crude oil for July delivery rose $1.17, or 1.8 percent, to $65.93 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Prices are down 8 percent from a year ago.

Brent crude oil for July settlement rose $1.01, or 1.5 percent, to $69.61 a barrel on the London-based ICE Futures exchange.

``The Saudi headlines are both good and bad news,'' said Tim Evans, an energy analyst with Citigroup Global Markets Inc. in New York. ``The Saudis reduced supplies to Asia again, which is bullish. On the other hand this is evidence that Asian demand is lousy.''

No Shortage

Iran's Oil Minister Kazem Vaziri-Hamaneh said there's no shortage of crude oil globally and the high oil price is because of low product stockpiles. Iran, OPEC's second-largest oil producer, will start gasoline rationing ``very shortly,'' he said after attending the Asia Oil and Gas Conference in Kuala Lumpur today.

The U.S. increased its criticism of Iran's stonewalling of nuclear inspectors, and the United Nations atomic agency's chief warned of a ``brewing confrontation'' over Iran's uranium enrichment program.

``I am increasingly disturbed by the current stalemate and the brewing confrontation -- a stalemate that urgently needs to be broken, and a confrontation that must be defused,'' International Atomic Energy Agency Director General Mohamed ElBaradei told diplomats today at the IAEA's Vienna offices, according to a copy of prepared remarks given to reporters.

Iran says it is enriching uranium as part of a nuclear- energy program permitted under the Non-Proliferation Treaty. The U.S. says the Iranians are disguising plans to build an atomic bomb, a violation of the accord.

Concern that the dispute over Iran's nuclear program might disrupt shipments from the country has supported prices over the past year. Attacks on oil facilities in Nigeria have curtailed shipments and also bolstered prices.

Regular gasoline at the pump, averaged nationwide, slipped 1 cent to $3.081 a gallon yesterday, according to AAA, the nation's largest motorist organization. Prices touched a record $3.227 a gallon on May 24. Retail gasoline prices are up 6.3 percent from a year ago.

Jubak on Saudi Oil

2007-06-06T00:25:00.000-07:00

Saudi Arabia is running the U.S. economy.
I'm not sure the Saudis want the task, but they've got it. Because the United States still doesn't have a national energy policy, we've thrown decisions about how fast our economy grows and whether our standard of living rises or falls into the hands of Saudi Arabia's oil ministry. [...]
It's now Saudi Arabia that's trying to find a delicate balance. In the Organization of Petroleum Exporting Countries (OPEC), the Saudis are the swing producer -- the only major oil producer with enough extra production capacity to increase supply when the price of a barrel of crude soars, and the only major oil producer with the political will and foresight to cut supply when prices fall too low. Right now, the Saudis are producing at 8.5 million barrels a day. Depending on whose figures you believe, their production capacity is anywhere from 9 million to 11 million barrels a day.
If the Saudis allow oil prices to climb too high, then consumers will cut back on use, and energy alternatives will become sufficiently attractive to investors to cut into oil's share of the global energy market. Worst case: Oil prices will climb so high that they cause a global recession that will certainly cut demand.
If the Saudis allow oil prices to fall too much, they will reduce the revenue they get for oil and reduce their clout among those oil-producing countries that are only willing to follow the Saudi lead as long as it lines their pockets. Worst case: Revenue falls so far that the Saudis and other oil-producing countries don't have the cash to support their own plans for growing their economies and providing the jobs and subsidies that keep many oil-country governments in power. [...]
The U.S. economy is no exception. Total oil imports into the United States jumped by 14% in March from February to hit record levels. And even as gasoline prices soar in the United States, consumption growth continues. U.S. gasoline demand in May was up about 1% from May 2006.
How much clout does that give the Saudis over the U.S. economy?The United States imports about two-thirds of its oil at a cost of about $300 billion a year. According to a study by the Rand Corp., each $10 increase in the cost of a barrel costs the average American household $700 a year.
In January 2004, the price of oil was $34.27 a barrel, according to the St. Louis Federal Reserve. It closed at $65.08 on June 1, 2007. Using Rand's numbers, that's an increase of $2,156 per household for oil. In that same period -- when the Federal Reserve's short-term interest rate increases pushed the yield on the 10-year Treasury note to 4.95% from 4.30% -- U.S. Gross Domestic Product growth dropped from 3.9% in 2004 to 3.2% in 2005, 3.3% in 2006 and to 0.6% in the first quarter of 2007. I certainly can't tease out the effects of higher oil prices from the effects of higher interest rates, but my suspicion is that the former has had a bigger effect on the U.S. economy in this period than the latter, thanks to the continued availability of cheap money from global sources such as Japan.
Saudi Arabia has no interest in killing the U.S. or the global golden goose. Sending our economy or, worse yet, the global economy into a recession, or even quarter after quarter of growth below 2%, would wreak havoc with Saudi revenues.
But it is in Saudi self-interest to charge the most the market will bear; after all, oil is an exhaustible resource. Even though we can debate about when that resource might be so depleted that Saudi Arabia can't produce significant oil, we all know that one day the oil will be gone. So every time a terrorist attack in Nigeria, a flare-up in tension between the United States and Iran or an expropriation by Venezuela's Hugo Chavez spikes the price of oil, you can bet the Saudis are studying the market response. If a price spike doesn't result in a significant decline in consumption, then the inclination of any rational oil producer would be to let prices drift higher (or to push them higher by cutting production). [...]

June 5th - MSN Money

Saudi Arabia sees no need for raising production

2007-05-28T22:04:00.001-07:00

Saudi Arabia sees no need for raising crude oil production
05.28.07
RIYADH (Thomson Financial)

The surge in oil prices is being driven by political factors and there is no need for additional crude supplies, Saudi Arabia's assistant oil minister said on Monday.
'What brings prices up is politics, what brings them down is politics,' Prince Abdul Aziz bin Salman bin Abdul Aziz told Agence France-Presse, referring to tensions in major crude producers Nigeria, Iraq, Iran and Venezuela.
'We have a well-supplied market,' he said on the sidelines of a European-Gulf forum today. 'We have always said, and OPEC has always committed itself to keep the market well-supplied and balanced. Never has this market been more balanced with crude than today,' said Prince Abdul Aziz, who is assistant oil minister for petroleum affairs.
He said that while there was no need for additional crude supplies, there is a problem with refining capacity. He was referring to what Saudi officials say is a need to invest in expanding refining capacity in consumer countries.
OPEC kingpin Saudi Arabia was sticking to its output quota of 8.5 mbpd, he said.

Saudi Cautious on Oil Plans

2007-05-10T15:49:00.000-07:00

Saudi cautious on oil plans as demand uncertain

May 10, 2007
By Simon Webb

DUBAI (Reuters) - Saudi Arabia's reluctance to commit to boosting oil production capacity beyond 2009 is a response to the potentially huge impact on future demand of energy efficiency, alternative fuels and high prices.
Demand uncertainty is providing little incentive for oil producers to risk investing billions of dollars on long-term projects to boost capacity, as they worry it will lie idle.

"This is a major concern for producers," said David Kirsch, manager of market intelligence at Washington-based consultancy PFC Energy.

"If you assume certain conservation measures, alternative fuels and the introduction of some form of carbon limiting legislation, you could take as much as 6 million barrels per day (bpd) off global demand by 2015."

Under the greener world scenario, PFC projects demand growth could be limited to 4 million barrels per day between 2007 and 2015, taking global consumption to 89 million bpd from around 85 million bpd now, Kirsch said.

Without environmental and conservation policies, demand could soar to as much as 95 million bpd, he said.

The International Energy Agency (IEA), adviser to 26 industrialized nations, has pegged the untrammeled demand scenario even higher, at 99 million bpd in 2015.

Faced with such disparate projections, Saudi Oil Minister Ali al-Naimi sent the strongest signal yet last week from the world's biggest oil exporter that it needs concrete signs of demand before committing to further supply boosts beyond its 12.5 million barrels per day target in 2009.

"Our feeling now, with the thrust and push for conservation, efficiency and the use of alternatives, is that we probably need not go beyond 12.5 million bpd," Naimi said after a gathering of Asian and Middle East energy ministers in Riyadh.

Naimi has called for better data on future demand, turning the tables on oil consumers that press producers for commitments to boost output capacity.

Saudi Arabia sits on a quarter of the world's oil reserves and is seen as one of the principal sources of future supply growth. The IEA has forecast the kingdom may need to boost output to as much as 18 million bpd by 2030.

Targeting that kind of capacity boost would be unwarranted in the current price environment and may anyway be unsustainable, said Sadad Husseini, a former top executive at Saudi Arabian oil firm Saudi Aramco.

"I think the oil minister's comments introduce a certain realism to all these projections that wasn't there before," he said. "It's not that demand will go down, it's that it will level off at these higher
prices."

Soaring energy costs globally, as the industry strains to bring new capacity online, are making producers more cautious.

"Making such investments at a time when capital expenditure costs are at an all-time high entails a significant risk. The last thing we need is idle capacity," OPEC President and United Arab Emirates Oil Minister Mohammed al-Hamli said in Riyadh.

HIGH PRICES CURB DEMAND

High prices have slowed annual demand growth from the breakneck pace of 2004, when the world's thirst for oil grew more than 3 million bpd. Last year, annual growth was just over 750,000 bpd, according to the IEA.

As oil markets reeled from the 2004 growth, Saudi Arabia accelerated its plans to expand to the 2009 target to ensure it kept spare capacity of at least 1.5 million bpd to deal with any surprise global supply outages. Naimi said then that the kingdom could raise capacity further to 15 million bpd if needed.

Since then, as well as encouraging conservation and alternatives, high prices have allowed non-OPEC producers to begin drilling oilfields that were previously deemed too expensive, a process that continues to play out.

"We still haven't seen the full effect of the high price scenario on non-OPEC supply," said Husseini.

Saudi Arabia and other OPEC members late last year agreed to cut production by 1.7 million bpd to bolster prices. Even before then, the kingdom had reined in supply on slower demand for its oil.

According to a Reuters survey, Saudi Arabia was producing around 8.5 million bpd in April, down from around 9.45 million bpd in March 2006. With capacity of around 11.3 million bpd, it is already sitting on spare capacity of nearly 3 million bpd.

Should demand growth again begin to quicken, the kingdom could quickly install new capacity, the IEA said.

"We are not too concerned about our long-term numbers," said William Ramsay, the IEA's deputy executive director. "They can put in spare capacity very quickly if they want to."

Saudi King says he wants to Boost Production

2007-04-15T18:19:00.000-07:00

The Associated Press
Apr. 14th, 2007

RIYADH : Saudi Arabia wants to increase its oil production so it can meet domestic and international demand while ensuring "fair" world prices, King Abdullah said. xXX Now pumping just over 11 million barrels a day, the kingdom is the world's largest oil producer and the biggest supplier of petroleum to the United States.
The king did not say Saturday how much Saudi Arabia might increase production, but it has repeatedly said it was prepared to do so. Last May, Oil Minister Ali al-Naimi spoke of raising output to 12.5 million barrels a day by 2009.
Abdullah said the kingdom was "seeking to increase its oil production capacity so that it can meet its commitments for national growth and the demands of the international economies."
He added that Saudi Arabia "is aware of its international responsibilities and is working to create fair prices to this resource that take into consideration the interests of the producer and the consumer."
OPEC has cut production twice in the past five months, contributing to relative stability that has kept benchmark crude between US$50 and US$60 a barrel — down from the record highs of above US$78 a barrel last summer, but still around 40 percent above 2004 levels.
Abdullah made his remarks in his annual address to the unelected Consultative Council, the closest thing Saudi Arabia has to a parliament. The king delivered only a summary of his speech Saturday, and the full text was distributed to journalists.
In the speech, Abdullah also warned that Iran's nuclear program had added another crisis to the region that needs to be contained, along with the sectarian conflicts in Iraq and Lebanon.
Saudi Arabia has recently embarked on an aggressive push to resolve the Middle East's most troubling issues, sending envoys to Iran, talking to Shiite and Sunni Iraqis and urging Lebanon's feuding leaders to negotiate.
Without naming Iran directly, Abdullah said Saudi diplomacy had been careful to deal with the "nuclear issue in a peaceful, rational and objective manner that seeks to avoid tense rhetoric" while seeking to keep the Middle East free of weapons of mass destruction.
"The issue of the nuclear crisis in the region has created a new burden in the region, adding to its consecutive crises," the king said.
The rising profile of Shiite-majority Iran worries Saudi Arabia, a predominantly Sunni kingdom ringed by neighbors with Shiite majorities — Kuwait, Iraq, Bahrain and Yemen.
Some Saudis also fear that if the international confrontation over Iran's nuclear program escalated into war, Tehran would retaliate against U.S. allies in the region — and Saudi Arabia's oil installations across the Persian Gulf are the biggest and most important target.
Any disruption in the kingdom's oil exports would seriously affect world supplies and cause prices to soar.

Aramco Manifa Field Project on Target

2007-04-12T18:49:00.000-07:00

Saudi Aramco $10B Manifa Field Project on Target for Mid-2011

Apr 12, 2007 Dow Jones Newswires

DUBAI - Saudi Arabian Oil Co., the world's largest oil company by production, is on schedule with plans to develop the Manifa offshore oil field to produce 900,000 barrels a day of crude by mid-2011, the company has said.
Plans for the field development are "proceeding on schedule" to be completed in June 2011, the Manifa project management team said at a recent progress update meeting in London, according to a report posted on Aramco's Web site Wednesday.
The estimated $10 billion Manifa development program, Aramco's largest-ever offshore project, aims to add 900,000 barrels a day of Arabian Heavy crude and 65,000 barrels a day of condensate production.
The project will also process 90 million cubic feet a day of natural gas.
Persian Gulf oil producers are spending income generated from three years of high oil prices to expand and upgrade their crude oil production capacity to meet rising global demand, in particular from fast-growing Asian economies such as China and India.

Aramco to Cut Oil Supply to Asia

2007-04-12T00:21:00.000-07:00

Saudi Aramco to Cut Oil Supply to Asia a 7th Month
By Nesa Subrahmaniyan

April 12 (Bloomberg) -- Saudi Aramco, the world's largest state oil company, will maintain a cut in crude oil supply to Asian refiners for a seventh month in May. xxx

Saudi Aramco will reduce mainly contracted supply of its Arab Heavy crude exports, said three refinery officials who received notices and asked not to be identified because of confidentiality agreements with the Dhahran, Saudi Arabia-based oil producer. The company has lowered shipments below contract levels since November.

The supply cuts are between 9 percent and 10 percent of contracted volumes, the officials said. Saudi Aramco is lowering exports to Asian refiners in April by an average 9 percent, and the cuts this month and in May are more than the 7 percent reduction in March shipments.

Saudi Aramco's export reduction is to comply with 1.7 million-barrel-a-day production cuts agreed last year by the Organization of Petroleum Exporting Countries.

Fredrik Robelius on Saudi Arabia

2007-04-06T23:31:00.000-07:00

Fredrik Robelius – Giant Oil Fields

Many publications with forecasts of future oil production has a gap between future production and demand. A common solution to fill the gap is production from Saudi Arabia. There seem to have been a general consensus among forecasters on a more or less unlimited production capacity from Saudi Arabia, with production levels up to 20Mbpd (EIA, 2005, 2006; IEA, 2005).

Peculiar enough, this consensus has developed despite no such information fromneither Saudi Aramco nor Saudi Arabian officials. Permanent increases in production rates together with ever increasing reserves have simply been taken for granted. Indeed, the reserves of Saudi Arabia are large, the largest in the world. However, to refer to the discussion in chapter 5, the official Saudi Arabian proven reserve number is listed at around 260Gb and have been more or less unchanged the latest 16 years. This is despite a total production of 48Gb during the last 16 years. Moreover, new field discoveries during the same time amount to less than 10Gb (OFN,GF). Thus, a simple calculation reveal a proven reserve of around 220Gb. This number includes the debated increase from 170Gb to 258Gb in 1990. A look at the URR for the giant fields of Saudi Arabia reveals a number between 230 and 361Gb (GF). A majority of this difference can be found in the URR estimates of the largest fields: Ghawar, Safaniya, Berri, Shaybah, Abqaiq and Zuluf. Cumulative Saudi Arabian production excluding the neutral zone is some 103Gb. This leaves a volume between 127 and 258Gb left of the original URR. By assuming the URR to the 2P reserves, the higher number is consistent with the official number. The only difference being the official number is proven reserves instead of 2P.Moreover, assuming the top 25 per cent is probable reserves leaves the high end estimate of Saudi Arabia proven reserves at 194Gb and the low end at 95Gb. Still, the lower value is a very large reserve but undeniable much less than the official value of 260Gb. Unfortunately, as Simmons (2005) has argued, neither Saudi Aramco nor the official Saudi Arabian oil ministry has released any detailed field by field data to prove either the reserve estimate of 260Gb or 95Gb right.

As a response to Simmons work, two representatives from Saudi Aramco presented their view on the criticism on the Saudi reserve at a meeting inWashington D.C. The presentation by Baqi and Saleri (2004) showed for the first time since the early 1980s details on production from single fields. Furthermore, the presentation includes a forecast on future production from Saudi Arabia. The forecast shows two views, one of sustained production at a 10Mbpd level and the other at 12 Mbpd. Thus, far away from other forecasts of 20 Mbpd. Moreover, Dr S. I. Al-Husseini, retired executive from Saudi Aramco E & P, called the expectations of 20Mbpd production from Saudi Arabia unrealistic, instead he referred to future plateau levels of 10 and 12Mbpd (Mortished and Duncan, 2004; Al-Husseini, 2004).

pages 106-107 Fredrik Robelius – Giant Oil Fields
http://publications.uu.se/abstract.xsql?dbid=7625

Saudi King Condemns U.S. occupation of Iraq

2007-03-28T15:17:00.000-07:00

From the New York Times:
RIYADH, March 28 — King Abdullah condemned the presence of American forces in Iraq as an “illegitimate foreign occupation” in a speech today, and said the withholding of aid to Palestinians should end.

The king’s speech, at the opening of the Arab League summit here, appeared to distance his country’s position from that of the United States. Saudi Arabia has been a powerful Arab ally to the United States in the Persian Gulf region.

The speech was wide-ranging, but in referring to the Palestinians and the conflict in Iraq he touched on two of the biggest issues in the Middle East. “In our dear Iraq, the blood is spilling between our brothers in light of an illegitimate foreign occupation,” he
said.

Amy Jaffe - - Rice University Study

2007-03-02T02:33:00.000-08:00

Rise of National Oil Companies Crimping Long-Term Crude Supply

by John M. Biers
Dow Jones Newswires 3/1/2007

URL: http://www.rigzone.com/news/article.asp?a_id=42009

HOUSTON Mar. 01, 2007 (Dow Jones Newswires)
The rising dominance of national oil companies has relegated the Western oil majors to "second-tier status" and could have a "substantial long-term impact on resource development," according to a report to be released Thursday by researchers at Rice University.

The report, which notes national oil companies, or NOCs, now control more than 75% of global proved oil reserves, offers broad policy guidance to U.S. officials on navigating a global oil patch increasingly controlled by companies that view their socio-economic mission as equal to, or more important, than their commercial success. It will be released Thursday at a conference hosted by the James A. Baker Institute for Public Policy at Rice.

Although the report doesn't explicitly discuss prices, the rise of NOCs has been a "huge factor" in the price run-up of recent years, said Amy Myers Jaffe, a Rice fellow in energy studies who helped prepare the study. If leading NOCs don't adopt more commercially oriented measures, then "the path for prices is up," Jaffe added.

Crude currently trades in the $60-per-barrel range amid a multi-year bull run in energy commodities that began in 2004 and is expected to persist for at least a few more years. Analysts have generally attributed higher prices to several factors, including surging Asian energy demand, political instability in the Middle East and tepid production from a war-torn Iraq.

The Baker report suggests the rise of NOCs constitutes an important, if less obvious, factor in this trend. Companies like Venezuela's Petroleos de Venezuela, or PdVSA, have steered significant investment dollars away from oilfield development and toward social programs, while Iran's National Iranian Oil Co. could cease to be an oil exporter by 2011 because of costly fuel subsidies that encourage consumption, according to the report.

While these programs "admirably" benefit wider socio-economic objectives, they impact output, the report said. "These noncore, noncommercial obligations have imposed costs on NOCs, and in some cases, dilute the incentive to maximize profits," according to a summary of the report. "The result has been stagnation in capacity growth, and an inability to maintain or grow the countries oil production capacity."

The report broadly praises national oil companies such as Norway's Statoil ASA (STO) and Malaysia's Petronas that have moved to at least partially privatize and/or sell shares publicly, an approach with "empirically" demonstrable efficiency benefits. The report also praises global oil heavyweight Saudi Arabian Oil Co., or Saudi Aramco, for its dexterity to date in fulfilling non-commercial goals with its core oil functions, but notes that "questions remain" on whether the company can continue to "balance these conflicting goals as the call on its oil rises to new highs."
The road ahead is more complex for the U.S. and other importing nations, the report suggests. While the U.S. would probably prefer to see NOCs privatized, "it will have to accept NOCs as a fact of life but should encourage steps to make their activities more businesslike, transparent and - to the extent possible - free of onerous government interference," the report said.

Here is a link to the study. It comprises 17 sections in Adobe(PDF) form which can be downloaded. There is a lot of good material here.

http://www.rice.edu/energy/publications/nocs.html

Saudi Aramco paper (100 pages) :

http://www.rice.edu/energy/publications/docs/noc/Final%20PDFs/SaudiAramco_Jaffe-Elass.pdf

Vaclav Smil on Saudi Arabia and Peak Oil

2007-03-01T03:35:00.000-08:00

http://www.tcsdaily.com/article.aspx?id=021307A

If one is to believe the catastrophic prophecies of Matthew Simmons, another prominent peak-oiler, this must be the stupidest business decision of the 21st century. Simmons claims that Saudis have falsified their oil reserve data so much that in reality they have only a fraction of the claimed oil left in the ground, and that their, and the world's, largest oilfield, al-Ghawar, has been so damaged by waterflooding (used for enhanced recovery of oil) that it faces imminent and massive extraction downturn. And yet Saudis will be investing nearly $50 billion between 2007 and 2011 to get this nonexistent oil to the global market. Perhaps they know something that Simmons is not aware of (these days it is, after all, de rigueur to say only bad things about Saudis).

Peak Oil, Saudi Arabia, Vaclav Smil, Matthew Simmons

Saudi Aramco Found More Oil Than It Produced in 2006

2007-02-28T10:58:00.000-08:00

by Oliver Klaus
Feb 28, 2007

DUBAI - Saudi Arabian Oil Co., the world's largest oil company by production, discovered 3.6 billion barrels of crude oil reserves last year, 6% more than it produced, the Saudi Press Agency reported Wednesday.

Saudi Aramco also added 10.4 trillion cubic feet of natural gas to its reserves in 2006, more than expected, Chief Executive Abdullah Jumah said at the company's board meeting in Dhahran, according to SPA.

Saudi Arabia holds the world's largest oil reserves at 264.2 billion bbl and the world's fourth largest gas reserves at 243.6 trillion cubic feet, according to the BP Statistical Review 2006.

Aramco's installed oil production capacity increased to 10.7 million barrels a day by the end of 2006, SPA reported Jumah as saying.

The figure doesn't include oil production from the partitioned neutral zone shared between Saudi Arabia and Kuwait.

The capacity addition of 300,000 b/d came from the completion of Aramco's Haradh field increment last year.

Aramco also continues to carry out work on 52 projects, Jumah said, according to SPA.

© 2007 Dow Jones Newswires.

RockDoc123 on PeakOil.com

2007-02-26T07:15:00.000-08:00

http://www.peakoil.com/fortopic10918-0-asc-615.html

This is a thread that has been running for over a year on Saudi production.

Econbrowser On Saudi Cuts of 1 million barrels per day

2007-02-26T07:01:00.000-08:00

http://www.econbrowser.com/archives/2007/02/saudi_oil_produ_1.html

James D. Hamilton writes:

That price doesn't look to me like it's being stabilized by the Saudis or by anybody else. In particular, the cuts in Saudi production began in October 2005, when oil was selling for $62 a barrel, and those cuts continued as oil rose to a new high over $75 last summer.

For that matter, the Saudi production numbers themselves don't look to me like they're under the precise control of anybody. Up through the first half of 2005, the Saudis hit
9.5 mbd or 9.6 mbd month after month. I interpreted the stability of those numbers as signaling that the Saudis could hit any target they wanted, and they happened to be picking 9.5 or 9.6. By contrast, the erratic path since is much harder to view as the outcome of some careful manipulations.

Saudi Arabia Oil Production and Price Chart

2007-02-25T01:35:00.000-08:00

Saudi 'Political' Agenda Aside, Oil Soars

2007-02-25T00:27:00.000-08:00

by Masood Farivar
Feb 23, 2007

NEW YORK - So much for Saudi Arabia trying to squeeze Iran's economy by knocking down the price of crude oil.

For weeks, Washington has been abuzz with speculation that oil giant Saudi Arabia, in an effort to counter Iranian influence in the Middle East, has started to drive down the price of oil to deprive Tehran of badly needed revenue.

The seed of the theory was planted in a provocative opinion piece by a one-time consultant to the Saudi government, Nawaf Obaid, that appeared in November in the Washington Post. In it Obaid argued that Saudi Arabia could devastate the Iranian economy by boosting its crude production and cutting the price of oil in half.

With oil prices falling sharply in early January amid warm weather across much of the U.S., the mainstream press picked up on the idea, with the New York Times reporting that the oil kingdom had resolved to keep prices close to $50 a barrel and a prominent Times of London columnist calling the alleged effort part of a U.S.-led "economic pincer movement" to thwart Iran's hegemony in the Persian Gulf.

The reports caught the attention of Iranian President Mahmoud Ahmadinejad. After unveiling a draft budget last month and being forced by lawmakers to base it on $30 oil prices, he managed to put a political spin on it. "We assume our enemies want to damage us by decreasing the price of oil," Ahmadinejad said. "So we have reduced dependency on oil revenue."

But Saudi officials have denied any political agenda to drop the price of oil. To drive home their point, they even severed their ties to Obaid. If that's not enough for skeptics, consider recent Saudi actions and their consequences in the oil market: Thanks in no small measure to an aggressive Saudi effort to remove "excess supply" from the market, oil prices have climbed from a January low of less than $50 a barrel to a high of almost $62.00 a barrel on Friday.

"They're definitely not trying to drive prices lower," said Phil Flynn, an oil analyst at brokerage Alaron Trading Corp. in Chicago. "Whenever the Saudis speak, people look for a conspiracy. If the Saudis are trying to push down prices, they're going about it the wrong way."

Saudi officials have long called for "moderate" prices, although they have studiously avoided outlining a desired price level. But Saudi production policy decisions over the past year have aimed to keep prices somewhere around $60 a barrel. Last year, Saudi Arabia not only reduced its own output by about 800,000 barrels a day to 8.8 million barrels a day, but also engineered two agreements by OPEC to cut production by a total of 1.7 million barrels a day. The result: prices averaged $66 a barrel last year. OPEC's most recent output cut of 500,000 barrels a day, the bulk of which came from Saudi Arabia, went into effect Feb. 1 and contributed to the recent rebound in oil prices.

"These policy actions were clearly intended to put a floor under prices, not yank the rug out from beneath them," said Tim Evans, an energy analyst at Citigroup in New York.

Saudis Need Oil Revenue Too

As OPEC's de facto leader, Saudi Arabia is certainly in a position to influence oil prices and indeed uses that leverage every day. On the other hand, Iran, OPEC's second-largest producer, is in a shaky economic position even with high prices, struggling with high unemployment, spiraling inflation and a young and restive population heavily dependent on cheap government-subsidized gasoline. A plunge in oil prices could add to the country's economic malaise and destabilize it politically.

But Saudi Arabia is no less insulated from sharply lower oil prices. While clearly in better economic and financial shape than it was just a few years ago, the country remains just as dependent on oil revenues to support one of the world's fastest-growing populations with double-digit unemployment rates. And it is just as vulnerable to an extended period of lower prices, as underscored by the economic havoc brought about by the collapse of oil prices in the late 1990s. A $10 drop in the price of oil, for example, costs Saudi Arabia more than $30 billion in lost annual revenue (by contrast, Iran loses only $9 billion).

Even if Saudi Arabia wanted to, it is simply not in a position to engineer a price collapse by flooding the market the way it did in the mid-1980s. In 1985, faced with an eroding market share and falling revenue, Saudi Arabia decided to tap its 5 million barrels a day in spare capacity to boost its production by 40%. The result: prices plunged from nearly $32 a barrel to less than $10 a barrel within months.

Not The 1980s

Saudi Arabia's ability to drive down prices has since waned, thanks to a sharp decline in its spare production capacity. The EIA estimates Saudi Arabia's current unused capacity is just 1.7 million barrels a day to 2.2 million barrels a day, up nearly 800,000 barrels a day from a year ago. The kingdom plans to add another 500,000 barrels a day in capacity next year and to raise total capacity to 12.5 million barrels a day by 2009.

But with production on the rise to meet growing world demand, the kingdom's spare capacity is expected to remain around 2 million barrels a day, a fraction of the 86 million barrels a day in world oil consumption. What's more, half the spare production, defined as capacity that could be brought on line within 90 days, is of the hard-to-refine "heavy sour" variety, considered less desirable by many refineries.

"The 1980s were different from the present period because there was an oil glut and lower global demand," said Steve Yetiv, a political science professor at Old Dominion University in Norfolk, Va., and an expert on energy security. "With demand still high, it is much harder to flood the market. The Saudis, however, could try to affect the psychology of the market but that is a hard game to play."

Gulf Production during 1980's

2007-02-02T11:11:00.000-08:00