• 6 minutes Can the World Survive without Saudi Oil?
  • 10 minutes Saudis Threaten Retaliation If Sanctions are Imposed
  • 15 minutes Closing the circle around Saudi Arabia: Where did Khashoggi disappear?
  • 1 hour U.N. About Climate Change: World Must Take 'Unprecedented' Steps To Avert Worst Effects
  • 3 hours Saudis Pull Hyperloop Funding As Branson Temporarily Cuts Ties With The Kingdom
  • 10 hours Judge Approves SEC Settlement With Tesla, Musk
  • 2 hours WTI @ $75.75, headed for $64 - 67
  • 4 hours How High Can Oil Prices Rise? (Part 2 of my previous thread)
  • 4 hours UN Report Suggests USD $240 Per Gallon Gasoline Tax to Fight Global Warming
  • 7 hours Iranian Sanctions - What Are The Facts?
  • 8 hours EU to Splash Billions on Battery Factories
  • 5 hours China Thirsty for Canadian Crude
  • 9 hours Porsche Says That it ‘Enters the Electric Era With The New Taycan’
  • 10 hours Gold price on a rise...
  • 11 hours Saudi Crown Prince to Trump: We've Replaced All Iran's Lost Oil
  • 5 hours Shell, partners approve huge $31 billion LNG Canada project. How long till Canadian Federal government Environmentalates it into the ground?
Alt Text

Saudi Arabia And Russia Make Secret Oil Deal

Saudi Arabia and Russia have…

Alt Text

Goldman Warns Of Oil Market Surplus Next Year

Investment bank Goldman Sachs says…

Alt Text

EIA Inventory Count Accelerates Oil Price Slide

Oil prices continued to slide…

Dan Dicker

Dan Dicker

Dan Dicker is a 25 year veteran of the New York Mercantile Exchange where he traded crude oil, natural gas, unleaded gasoline and heating oil…

More Info

Trending Discussions

Can Iran And Saudi Arabia Production Claims Be Believed?

Iran and Saudi Arabia Flags

It's always the ultimate test on trading oil stocks – what to believe and what not to believe. Normally, you take earnings season with a grain of salt – never really sure what realities will come from the fantasies of CEO pronouncements and targets on conference calls. But this season has added other noise to make trading stocks more difficult – this time from the Iranian and Saudi oil ministers.

In light of the missed opportunity at Doha to curb OPEC production, angry statements have emerged from both Iran and Saudi Arabia on oil production – the Iranians saying that they cannot be stopped in increasing their exports another 1m barrels a day in the next 12 months, the Saudi oil minister in turn threatening to increase production another 2m barrels a day. Both of these statements need to be taken with not a grain, but a 5-pound bag of salt.

From the Iranian side, I have no doubts that an increase of another 1m barrels a day is precisely what they hope will happen, but the reality will surely be different. For all oil production, whether it is from an independent oil company or a sovereign nation, capital expenditures will determine the increase or decrease that can be achieved. Iran has a decidedly arthritic oil infrastructure, slowed by the lack of Western technology and the impact of a decade of sanctions. Their own economy is too weak to generate anywhere near the capex required to increase another 1 million barrels in the next year, and their overtures to foreign oil companies for leases inside Iran has been met cooly by prime contenders Total (TOT) and Eni (E). There is a lagged amount of already developed barrels that Iran can push onto the global market – perhaps 300,000 barrels a day; but by my reckoning, already 150,000 of those barrels have been added – making their ultimate targets very unlikely indeed to be reached.

The Saudis do not have any of the capex or technology problems that plague the Iranians. But the question of how much capacity the Saudis actually do have comes into play when they threaten to increase production by another 2 million barrels. For my entire career in oil, there has always been a dark question on Saudi 'spare capacity' – How much could the Saudis ultimately pump, if they were willing to open the spigots up fully? For years, the speculation from most oil analysts was near to 7.5m or 8m barrels a day – a number that was blown out in the last two years as Saudi production rocketed above 10m barrels a day.

But the strategy the Saudis have pursued has been clear – they have been working towards full production and an aggressive fight for market share since the failure of the Vienna OPEC meeting in November of 2014. It is very difficult to believe that the Saudis have had much, if any, remaining capacity to easily put on the market since that time, or if any spare capacity could be developed at all. It wouldn't be consistent to believe that for the last year and a half, the Saudis have been capable of increasing their production by another 20 percent, but have so far kept that potential under wraps. Instead, I am fully of the opinion that the Saudis are near, if not at their full production potential right now.

The oil market seems to agree – in February, if the threat of another 3 million barrels of oil hitting the global market had been unleashed, oil might have reached below $20 a barrel; today, oil is getting very close to rallying towards $50 a barrel instead.

All of this, combined with an accelerating rollover in U.S. production figures, a continued restraint of capex from oil companies being reported in this quarter's earnings, an increasing list of E+P bankruptcies (Ultra Petroleum and Midstates Petroleum being the latest) and continued debt burdens points to a very opportune time to continue accumulating survivor oil stocks for the long haul.

Knowing what to believe and when to believe it has always been a big part of figuring out the oil game – and never more so than today.




Back to homepage

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News