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By Robert Rapier on Sep 15, 2007 with no responses

Saudi to Raise Production

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

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

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

Saudi Arabia Wins OPEC Increase, Defying Iran, Libya

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

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

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

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

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

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

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

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

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

Why must the world always be black or white?

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

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

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

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

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