Posted on 06/06/2006 1:06:58 PM PDT by thackney
With Saudi Arabia's latest revelation, there's one less mystery to what's been behind oil price strength over the past few months.
While Saudi Arabia has said it's investing heavily to raise its oil output capacity to 12.5 million barrels a day in 2009 from 11.3 million b/d, the world's No. 1 crude producer has been quietly cutting back current volumes.
Saudi Oil Minister Ali Naimi, in an interview with The Wall Street Journal published Monday, said the country's output in April averaged 9.1 million b/d, its lowest level since January 2005.
Global oil prices have risen 10% from a first-quarter average of $65 a barrel to hold above $70 since the cut was implemented.
Naimi, speaking after the Caracas meeting of the Organization of Petroleum Exporting Countries, said the reduction was in response to a drop in demand, not an attempt to limit supply and prop up prices.
The oil minister suggested that the Saudis and others in OPEC would be happy to sell all the oil they could at current prices, implying that the Kingdom will lift supplies when demand from refiners increases.
The policy solidifies the Saudis' preference to act as a price-taker rather a price-maker in the current market, as Naimi ruled out discounting oil to sell it or offering cargoes on the spot market.
"We will not leave money on the table," Naimi said.
The Saudi attitude seems to suggest that, while the Kingdom might not directly endorse the current level of global prices, there is an attitude of acceptance and the Saudis clearly aren't going to act aggressively to bring it down.
Analysts said that while they couldn't quantify where prices would be if the Saudis hadn't taken a deliberate decision to reduce their output, oil prices most certainly would be weaker.
Don't Count On Saudis To Lower Price
The oil market, more than ever, has come to resemble an intricate Persian carpet, with many factors tightly woven together. Unraveling it can't be done by pulling on a single thread. Still, given Saudi clout in the market - the country holds most of the world's spare capacity - the Kingdom's output policy is central to the course of prices.
"If you're an American and counting on the Saudis to bring the price down, you're counting on the wrong horse," said an oil analyst who spoke on the condition of anonymity, citing his company's sensitivity in dealing with the Saudis.
The Saudis and OPEC have come under steady criticism from many in Congress for production restraint policies that are seen as fueling the continuing price rise. After campaigning in 2000 to "jawbone" OPEC into lowering oil prices, the Bush administration has shifted to seeing the Saudis as a reliable supplier of oil, while de-emphasizing prices and talking of using alternative fuels to limit oil imports down the road.
Crude oil prices have been pushed to nominal record highs by a host of factors on the supply and demand side. Soaring oil use in China and other developing countries came as geopolitical factors have disrupted output across the globe from Iraq to Nigeria to Venezuela at a time when there's little spare production capacity. An attempted terrorist attack on the world's largest oil processing facility in Saudi Arabia, and tensions over Iran's nuclear ambitions are keeping prices near $70 a barrel.
On the New York Mercantile Exchange, crude futures approached $74 Monday after Iran's supreme leader, Ayatollah Ali Khamenei warned that Iran would disrupt energy shipments from the Gulf should the country come under attack from the U.S. The U.S. and its allies are attempting to negotiate an arrangement with Iran which will prevent it from gaining the ability to produce nuclear weapons, while Tehran insists it only wants to develop nuclear power.
Ahead of the OPEC meeting, host Venezuela made hawkish comments that it wanted the group to cut output, even in the face of current high prices. While OPEC officially kept its output ceiling unchanged at 28 million b/d, the Saudis in cutting back have moved back to their assigned quota level.
Some analysts don't see Saudi Arabia revealing itself as a true price hawk with the singular move.
"The Saudis are not trying to cut (output) to bid up prices," said Yasser Elguindi, senior analyst at Medley Global Advisers in Philadelphia. "That's wholly absent from Saudi production policy now. There's no linkage whatsoever."
Supply To Rise With Refiner Demand
The Saudis "are having trouble moving product and are just not going to keep it out there on the market. They are reacting to things going on around them," Elguindi said, such as steep cutbacks in refinery operations in recent weeks. In early April, U.S. refiners processed their lowest volume of crude oil for that time of year since 1997.
Elguindi said it's "much more difficult today to get a handle" on the global oil market than ever before. That's because much of the growth in demand apparently is coming from countries such as China where data is often unreliable. And refiners want to hold more crude than ever before in a market with fairly tight spare production capacity.
Naimi told the Journal that the Saudis were having difficulty finding buyers for all of its grades of crude, not just harder-to-refine heavy crudes.
The newspaper quoted a senior Iranian oil official at the OPEC talks confirming that his country, the second-biggest producer in OPEC, was having trouble selling oil and was storing it, rather than selling it.
In the U.S., refiners are expected to sharply boost operations in coming weeks as the peak summer demand season for gasoline approaches. Medley's Elguindi believes that as U.S. refiners increase their appetite for crude, Saudi output will also rise.
"They'll be back at 9.4 to 9.5 (million b/d) in the not-too-distant future," he said.
Yes, on average since 2004 we get 4,000 barrels per day from South Korea, about 1/2,500 of the gasoline we use.
U.S. Imports by Country of Origin, Finished Motor Gasoline
Where does that oil come from? Most likely a place like Indonesia.
I have a lot of faith in the data from the Energy Information Administration. It is part of the Department of Energy. It's data come from very reliable sources at it is used for taxes and import levies. The EIA is widely referenced by many reporting agencies and publications.
My guess, and only a guess, is that this report published May 4th was written in April. When it states last month, the author was probably talking about March, not April. In April there was ~1,000,000 gallons deliveried. I suspect somewhere the data was converted from barrels into gallons twice. The article states "South Korean gasoline exports to the U.S. west coast soared last month", this was not a normal import level. The the average over a year or two does not come close to this level.
But I would like to see any other data you come across.
I would bet that the imports from SK in April, 2004 referenced in the Bloomberg article were 1 million barrels of gasoline (same as the 43 million gallons mentioned in teh article). That is still not very much for the US, since we consume 17 million barrels per day. I'll bet imports from SK are up to at least 2 million barrels per month by now. I'll see what I can dig up on this.
Maybe not usually, but it does happen. I recommend taking a quick look at the Explanatory Notes then look at the data.
Company Level Imports, March 2006, all petroleum products.
Shipments may not be a complete tanker, perhaps a partial filled tanker from Indonesia hauling crude stops at South Korea on the way to the US West Coast. Fills a compartment or two with gasoline for transport. But I am only guessing here, this is outside of my experience.
Although the numbers still don't match the article, I messed up the math. I was off by a factor of 10. If, according to EIA, March 2004 we received an average of 9,000 barrels per day from South Korea that (x 30 days x 42 gallons per barrel) equals 11,340,000 gallons for the month. Still not the amount from the article but a little more believable for shipping. We also received other petroleum products in the same time period. An average of 20,000 barrels per day. Shipments likely carried products such as Kerosene in separate compartments.
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