A modest drop in demand for Saudi crude, which means they sell a bit less at their posted prices.

Not sure what, if anything, makes them change price at this point.

Supply shocks that could cause demand for their output to fall further include a resumption of output from Iran, an increase from Iraq where development was going full tilt last I checked, and a bit from continued output increases and falling consumption in the US.

On the other hand, if Iran shuts down completely the call on Saudi output could spike beyond their ability to increase production and they’d lose control of prices on the upside.

8 Responses

  1. Several articles out there in the last week talking about USA becoming net exporter of oil in coming years, saying we are to surpass saudi in oil production. sounds like an “operation twist” brewing in the oil market?

    Any thoughts to the impact something like that would have?

      1. And if the earth is really running out of fossil fuel deposits, a demonstration of why imports are net benefits?

    1. @Ed, This is strictly a function of the price of oil getting high enough to justify the high cost of production from shale formations. I worked briefly on hydraulic fracturing fluids for Schlumberger … in 1985. Horizontal drilling was around then as well. These are not ‘new’ technologies (although some improvements may have been made), they are just expensive technologies. At this point it is not even clear that the current high prices are sufficient. Those ‘fracked’ wells don’t produce for very long at all. The true cost is masked by a speculative binge. This is particularly true for ‘dry’ methane production, which may have already reached the tipping point as drilling has now fallen off a cliff.

      In a rational world the oil age would already be coming to an end and the uranium age would have begun. We are creatures of habit, and people seem to want to hang onto fossil fuels. The alternative is there whenever we need it, when some countries, probably China, demonstrate with certainty that it makes sense. Let’s say in about 20 years.

  2. The nation, which was last self- sufficient when Harry S. Truman was president in 1952, met 83 percent of its energy needs in the first eight months of this year, according to the Energy Department in Washington.

    Saudi Arabia can’t afford a decline of that magnitude after the government pledged an unprecedented $630 billion on social welfare and building projects……

    The last time the U.S. rivaled Saudi Arabia proved a disaster for America’s oil industry and for the kingdom. U.S. production expanded 10 percent from 1976 to 1985, reaching the highest level since the Arab embargo in 1973.
    By late 1985, the Saudis were pumping more crude to defend their market dominance. WTI plunged to $10 a barrel in March 1986. U.S. output declined for 21 of the next 22 years and didn’t start growing again until 2009.


    1. @Winslow R.,

      How many times can the Saudis withstand people calling their bluff?

      ~zero probability that most of the world’s oil reserves are under one little country

  3. Warren, aren’t you being a bit harsh on Koo? 🙂

    After all, he may have been paid a LOT of money to write that. 🙁

    “A guy’s gotta look out for #1.” Benedict Arnold

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