Oil Falls as Saudis Say They Will Expand Production Capacity

[sabra]

http://www.bloomberg.com/apps/news?pid=20601082&sid=aL2BqI1q.u.Y&refer=canada

Oil Falls as Saudis Say They Will Expand Production Capacity

Jan. 17 (Bloomberg) -- Crude oil fell to a 19-month low as Saudi Arabia, OPEC's biggest producer, said it will increase production capacity.

Saudi Arabia has 3 million daily barrels of spare capacity and will push ahead with projects to expand output, Oil Minister Ali al-Naimi said today. Prices plunged yesterday after al-Naimi said he saw no need for an emergency OPEC meeting to consider further cuts in output. Prices have plunged 17 percent this year on speculation OPEC members won't comply with production cuts.

``The Saudis are saying that they don't want to be the swing producer,'' said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons Inc. in St. Louis. ``The Saudis have made substantial cuts, unlike a lot of the other OPEC members. Oil in a $40 to $50 range suits the Saudis much better than oil at $70.''

...

``The Saudis probably want lower prices for a combination of reasons,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``This could benefit them both politically and economically. This may be a signal for Iran to stop meddling in Iraq and at the same time stanch the move to alternative fuels such as ethanol.''

[bemildred]

1. They been saying this for a long time.

It will be interesting to see if they can really increase production, and if they do, how much?

[phantom power]

2. I think they would have already if they could. They don't want to admit they're at Peak.

My theory provides a falsifiable prediction: they'll continue to talk about increasing production, and it will continue to not happen.

[bemildred]

3. That would be my bet too, but only time will tell.

I read somewheres that Iran and Venezuela have been overshooting their quotas for some time, and I would have thought SA would have tried to slap down Iran by now, if they could.

[A HERETIC I AM]

5. Don't confuse production with reserves......

not that you are, but it is an important distinction. Even a field well played out can increase production, if even for a short time. Production is simply flowing more oil through the pipes. The Saudis still have plenty underground. They vary production based on many factors, primary of course is demand. Demand is way down in the US because of the mild winter so far.

[bemildred]

6. A good point.

It would be unwise to assume they have no control at all.

[Strelnikov_]

9. I Will Be Surprised If They Can Increase Capacity

We have heard this from them many times in the last few years.

When oil was $30, the target was $40.

When oil was $40, the target was $50 . . .

Two years ago $50 oil was met with trepidation. Now it is considered a bargain, and $10 below the target.

And I think the decline in Iran's oil revenue has more to do with increasing domestic consumption than 'low' oil prices.

[Nihil]

4. Subtle propaganda boost as well ...

> "This may be a signal for Iran to stop meddling in Iraq and at
> the same time ..."

A signal for ?who? to stop "meddling in Iraq"? Don't think it's Iran ...

[amandabeech]

8. The Saudis can meet their domestic financial needs with a much

lower price than can Iran. The Saudis have been reported to be interested in dropping the price below that needed by Iran to stop or send a signal to stop Iran from adventurism in the region, especially in Iraq.

As to whether the Saudis can surge a grade of oil that is in demand, I have no idea.

[aquart]

7. Is this what we get for staying in Iraq?

[IDemo]

10. They're shoving out what they have left with water injection

Saudi Aramco was already pumping ~7 million barrels daily through water injection wells to try to force oil to the surface, and they just announced an additional twelve mechanical drive units from GE (we bring good, oily things to life) to increase the flow. The "water cut", or percentage of water to oil at the wellhead, has been estimated at between 30-55 percent in the Ghawar field, and the term "oil-stained brine" has been used to describe the output at the pump.

[MADem]

11. This is how they are THANKING America and boxing in Iran, see

Cheney was called to SA last month for an asschewing. He was told that there was to be NO rapprochement with Iran, and that US soldiers would have to stay in Iraq. The Saudis are determined that the Shi'as will not gain influence over the Arab world, and they have the majority of Muslims on their side--those shi'as, they are a dangerous minority, but they are still a minority. And they need to be contained.

So, we rattle our carrier-sabres at Iran, and Monkey sends more troops to Iraq.

On the other front, IRAN desperately needs their oil revenues. They fund all of their public works, their government salaries, their largesse to the mullahs, many of whom are corrupt bastards, the widows and orphans pensions, and so forth...they NEED that income. They also have to pay to refine almost half of their gasoline because they don't have the capacity to do it in-house...when there's not a lot of margin on the price of oil, that takes up more of their budget. When the price of oil goes up, they can use the spare cash they make from their oil sales to toss a few rials to Hizb'allah, to fund the odd insurgents, to buy a few missiles from China and repaint them to suggest they've made them themselves, and so on.

When oil is LOW, Iran is boxed in. They've no spare cash, and their influence in the "ARAB" world is reduced. "Out, OUT, damned PERSIANS!" is the Saudi strategy. The Persians, when oil is cheap, can barely make the mortgage, as it were.