Saudi Arabia Can No Longer Expand Oil Pumping To Meet Demand

Elaine Meinel Supkis

Saudi Arabia is openly complaining that world demand for oil is causing strains within their own system because it is harder and harder to pump and process the oil. This is yet another sign that the world has rushed towards the Hubbert Oil Peak pretty rapidly and we are possibly now there.

Associated Press:

By JIM KRANE, Associated Press Writer Mon Apr 3, 2:14 PM ET
DAMMAM, Saudi Arabia - The world's only oil superpower boosted output last month, launching a pair of projects that are part of a massive $55 billion endeavor to keep pace with the world's ever-intensifying thirst for oil.

But demand for the world's premiere source of energy is rising so fast — by around 2 million barrels per day each year — that even Saudi Arabia's vast resources will be unable to cope without drastic help, oil executives and analysts say.

Remarkably, even Saudis, who control over a quarter of the world's known oil, are calling for relief from relentless consumption.

"The current out-of-control demand is not good for us," Ghazi Al-Rawi, head of private equity at Gulf One Investment Bank, said in a recent interview. "When you have this kind of demand, you're forced to supply beyond the optimal rate. That's not a positive thing."

The Cornucopia of oil is now gushing as hard as it can. Of course, the oil in Iraq could gush harder but that isn't enough to satiate world oil appetites which will now always outstrip supplies. I watch the headlines about energy costs fairly closely and it is rather funny how, each time the price dips a little, there is a huge celebration in the news in America and the hope that the Starry Goat's horn will spill a flood of oil into our tanks rises. Then cold reality sets in and the base price rises higher.

Last August, there were happy predictions that the price of oil would collapse thanks to Saudi Arabia pumping like mad. Predictions of oil being less than $30 a barrel caused monster truck owners in America to salivate with anticipation. When the hurricanes trashed a significant portion of our own oil industry, prices soared worldwide. Consumers in America who suck up a quarter of the world's oil were told that the price hikes were a temporary nuisance and by February or March, the price of oil would drop so badly, OPEC would have to reduce pumping to keep up prices.

Here we are, finished with March and the price is above $66 a barrel. Whenever it drops a dollar, the American stockmarket shoots up in value. This see-saw effect has caused the markets to rise, overall, but not by much and it constantly threatens to fall, badly. This is because the propaganda about how oil will be really cheap soon is beginning to flag. It is obviously way out of tune with reality that it can't excite people here anymore.

Energy Bulletin:

Kevin G. Hall, Knight Ridder Newspapers Detroit Free Press
WASHINGTON -- Oil prices are near last summer's record high, amid concerns about supply disruptions, and energy forecasters think volatile geopolitics and declining oil production will keep prices up for years.

Oil closed at $66.63 per barrel Friday on the New York Mercantile Exchange. Prices have soared amid concerns about disruptions in Nigerian oil production and a possible political showdown over the nuclear ambitions of Iran, the second-biggest exporter in the Organization of Petroleum Exporting Countries oil cartel.

Oil prices are approaching last year's all-time high of $70.85 a barrel, the price that came the day after Hurricane Katrina's landfall on the gulf coast, and U.S. consumers are feeling the shock at the gas pump again. In Michigan, a gallon of regular gasoline averages $2.635.

Bush and Cheney's popularity is directly attached to the price people pay for gasoline at the pump. Both men are increasingly profoundly unpopular. Their inability to pump oil cheaply from Iraq is troubling Americans. We spend over $2 billion a week, trying to impose our will upon that fractitious country, desperately trying to pump oil literally over their dead bodies. The high price isn't even appearing in American pocketbooks yet except in the form of inflation and rising interest rates. The loans America has to solicit from China and Japan to keep our economy running also aren't felt much yet but will be, increasingly, so that even the most sheltered American will suffer the direct effects of paying for all this via much higher taxes and much lower economic prospects.

BBC News:

A survey has named singer Michael Jackson as the "most foolish person" in the US for the fourth successive year.
Of 1,000 people polled, 69% said Jackson had "done something foolish" in the past 12 months.

US Vice President Dick Cheney, who shot a man while hunting, tied for second place with socialite Paris Hilton.

President George W Bush came next, followed by actor Tom Cruise, in the random phone survey by New York-based public relations consultants.

Whew. Talk about disgust and anger with Bush and Cheney! Ranked right up there with Paris Hilton and Michael Jackson. Men can't parade around the world, sneering, when they lead a nation that hates their guts. This is a diplomatic as well as military disaster. It was one thing for people who were not German to make fun of Hitler's bizarre looks but if the Germans did, he would not have been able to inspire them into launching WWII.

And Bush and Cheney want WWIII! Middle East Economic Survey:

By A F Alhajji

By historical standards, commercial stocks forward cover of demand and imports in OECD or in the US is low. This is not the case when the strategic petroleum reserves are added to the picture. For example, the US crude stocks forward cover of imports, including the SPRs, is significantly higher now than that between 1978 and 1980, as shown in Figure 3. Current US total crude oil stocks cover 50% more days than they did in the late 1970s. The US SPR was only 91mn barrels in 1979 – now it is about 680mn barrels. However, that is not the case for commercial crude oil stocks. Current commercial stocks forward cover of imports is similar to that at the beginning of 1979, during the Iranian revolution. Therefore, only a prompt commitment by the US government and IEA members to use the SPR can mitigate the effect of a decline in Iranian exports. It is worth noting that the above facts regarding the SPR and commercial stocks indicate that there is some sort of substitution between the SPR and commercial stocks, which limits the role of the SPR in enhancing energy security.

The opposite scenario would not include a production cut, but would see calls by Iranian leaders to cut off oil supplies or impose embargoes. It also would include demonstrations in the streets of Iranian cities demanding that the government use the oil weapon. As mentioned earlier, oil prices would increase on panic buying and stockpiling that followed the news of UN sanctions or an air strike, even if Iran did not cut production.

Several Possibilities
Between these two scenarios lie several possibilities. These include a selective embargo on exports to some European countries or revocation of the licenses of European oil companies operating in Iran. Oil embargoes, in general, would not have an effect on the market unless they were associated with a production cut. Selective embargoes do not work. At the same time, if a selective embargo was associated with a production cut, it would punish friends and foes alike. The impact of a selective embargo without a production cut would be limited to panic buying and stockpiling.

Of course, Iran just might take the selective boycott route and sell only to, say, China. They can also collaborate with Venezuela in raising world oil prices by jointly reducing oil flow. Both countries know that Saudi Arabia is on the ropes and can't increase output significantly anymore. Both countries are also being menaced by the USA which has been flaunting its nuclear powers in order to intimidate oil countries. The Republicans in America know their fortunes depend on keeping their base quiet with cheap energy and their base is getting restive. They cynically figure that fear of American nuclear missiles and subs will strong arm oil pumping nations into colluding with the ruling party in America but alas, the cornucopia of oil is at a critical stage, it just can't gush out cheap energy anymore no matter how many nukes rain down.

Action by the UN or the US and its allies against Iran would increase oil prices by a few dollars on the fear that this might reduce or halt Iranian oil exports. Prices would go even higher if Iran retaliated and reduced its oil exports. Nevertheless, it is unlikely that Iran would do so. It is not in its interest, under any scenario, to decrease exports, let alone to halt them. However, domestic pressure, a sense of nationalism, and the need to improve its bargaining power with Western countries might force the Iranian government to retaliate. Given the high economic and political costs of using the oil weapon, Iranian operatives in Iraq might cripple Iraqi oil exports from Basra, rather than reducing Iranian oil exports. This option, reducing world oil supplies by about 1.1mn b/d, would hurt US and UK plans for Iraq, while boosting Iran’s oil revenues.

This analyst grossly underestimates the ability of people to endure discomfort during time of war. The USA has invaded Iraq and is vainly trying to impose a government there while pretending it is self-ruled. The Iraqis hate this so much, they are in fierce, destructive battle with the USA and each other. The peculiar nature of war is that it can rapidly escalate into total destruction. Germany was a very sophisticated, "civilized" nation when it tried to destroy first the world, then itself. Even as the ruins were all in flames, they continued this orgy of destruction, even celebrated it! Even as the Russian army was bombarding Berlin, the Berlin Philharmonic played the End of the World theme from the final act of Wagner's Götterdämmerung.

Culture of Life News Main Page