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Saudi Arabia: Producing More Crude, Selling Less?
Saudi Arabia: Producing More Crude, Selling Less?.
Media reports are quoting an anonymous source as saying Saudi Arabia, the world’s leading oil exporter, supplied foreign and domestic customers with less crude during September even though its oil production was up slightly.
The source, identified only as being familiar with the Saudi oil industry, said it extracted, on average, 9.7 million barrels of crude each day of the month, a rise from 9.597 million barrels per day in August. At the same time, the source said, Saudi Arabia supplied customers with 9.36 million barrels per day in September, down from 9.688 million barrels per day the month before.
Sources – perhaps a single source – supplied the same data to several prominent news outlets, including Reuters, Bloomberg News and The Wall Street Journal.
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Our Finite World | Exploring how oil limits affect the economy
Our Finite World | Exploring how oil limits affect the economy.
A person might think that oil prices would be fairly stable. Prices would set themselves at a level that would be high enough for the majority of producers, so that in total producers would provide enough–but not too much–oil for the world economy. The prices would be fairly affordable for consumers. And economies around the world would grow robustly with these oil supplies, plus other energy supplies. Unfortunately, it doesn’t seem to work that way recently. Let me explain at least a few of the issues involved.
1. Oil prices are set by our networked economy.
As I have explained previously, we have a networked economy that is made up of businesses, governments, and consumers. It has grown up over time. It includes such things as laws and our international trade system. It continually re-optimizes itself, given the changing rules that we give it. In some ways, it is similar to the interconnected network that a person can build with a child’s toy.
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How will Saudi Arabia respond to lower oil prices? | Econbrowser
How will Saudi Arabia respond to lower oil prices? | Econbrowser.
Oil prices (along with prices of many other commodities) have fallen dramatically since last summer. Some observers are waiting to see if Saudi Arabia responds with significant cutbacks in production. I say, don’t hold your breath.
When oil demand fell in the 1981-82 recession, the Saudis cut production by 6 million barrels a day in an effort to soften the decline in oil prices. They also cut production in response to lower demand in the 2001 recession and the most recent recession. On the other hand, the kingdom boosted production quickly beginning in August 1990 and January 2003 in anticipation of lost production from Iraq in the two Gulf Wars. This historical behavior led many observers to believe that Saudi Arabia would always play the role of a swing producer to stabilize the price of oil.
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Resource Insights: Oil decline: Price makes the story
Resource Insights: Oil decline: Price makes the story.
When the world’s business editors sent their reporters canvassing to find out what is behind the recent plunge in the world oil price, they were doing what they do almost every day for every type of market: stocks, bonds, currencies, commodities and real estate.
In financial journalism more often it’s the price that makes the story rather than the story that makes the price. If a story is about something very surprising which almost no one can know in advance–a real scoop–say, an unexpected outcome in a major court case affecting a company’s most profitable patent, then the story will move the price of the company’s stock.
But much more often prices move, and then business editors send their reporters to find out why. Usually, a number of financial and industry professionals are asked: Why do you think prices went up/down? Then, the story is written and published.
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Peak Oil Notes – Oct 16
The price plunge which began in mid-June when New York oil futures trading around $105 a barrel continued this week with oil touching $80 on Wednesday before recovering to close at $81.78. London’s Brent crude underwent a similar collapse to close yesterday at $83.46. Weak demand: increasing US shale oil production: a stronger dollar; and the refusal of the Saudis and its Gulf Arab allies to cut production combined to trigger the decline. US retail gasoline fell to an average of $3.17 a gallon, the lowest since February 2011. The weekly stocks report will be delayed until Thursday, but analysts are expecting a 2 million barrel increase in US crude inventories.
The IEA confirmed the weakness in the world oil markets this week by cutting their forecast for the increase in global oil demand by this year by 250,000 b/d from last month’s estimate. The Agency now believes that growth in consumption this year will be only 700,000 b/d, but will increase to 1.1 million b/d in 2015 as the global economy improves.
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