Something Strange Is Happening In The Saudi Oil Patch

Dr Ms Irina:

you wrote:

"Saudi Arabia has abundant storage capacity and over the last three years, stockpiles have been falling, from more than 300 million barrels to less than 250 million barrels, according to data from JODI quoted by Lee"

and then you wrote:

"Saudi Arabia has storage capacity in excess of 40 million barrels of crude, both at home and abroad. Its biggest storage terminal is Ras Tanura, with 33 million barrels. Another major storage hub is the King Fahd terminal, with a capacity of 12.5 million barrels of crude."

What is the right figure for Saudis´ oil storage capacity?

Thanks

Fernando

If Saudi Arabia is indeed filling up its oil tanks, then I would provide two explanations.

The first is that Saudi Arabia is taking very seriously Iran’s threat to disrupt oil shipments through the Strait of Hormuz if it was prevented from exporting its own oil as a result of US sanctions.

Saudi Arabia has the 750-mile Petroline (or East-West Pipeline) which runs across Saudi Arabia from the East to the Red Sea in the West at the Yanbu port. Through the Petroline with a capacity of 4.8 mbd, some Saudi oil could bypass both the Straits of Hormuz and Bab al-Mandeb, linking up with tankers at Yanbu port and from there towards the Suez Canal and the Mediterranean.

The other explanation is that Saudis have not been truthful about their proven oil reserves, production capacity and spare production capacity. They claim they could produce 12.5 mbd if it is really needed. However, this claim doesn’t stand scrutiny. Saudi oil production peaked in 2005 at 9.64 mbd and has been in decline since. Out of 10.4 mbd they said they were producing, almost 1 mbd was not actual production but withdrawal from their oil stocks stored on board tankers and on land. Even the 400,000 b/d they claim to have added recently came from their stored oil and were not actual production. Their claim that they have a spare capacity of 2 mbd is also not true. That is why their oil stocks have been steadily declining.

Saudi Arabia’s suspension of oil shipments through the Strait of Bab al-Mandeb after the attack on its oil tankers in the Strait by the Houthi rebels in Yemen has demonstrated the vulnerability of the world’s major oil chokepoints, namely, the Straits of Hormuz, Bab al-Mandeb, Malacca and the Suez Canal, to disruption.

Iran has threatened to close the Strait of Hormuz if it was prevented from exporting its crude oil as a result of US sanctions. Iran’s threat should be taken seriously.

The Strait at its narrowest point is 21 mile wide so it is impossible militarily to close it completely. But Iran can mine stealthily with the expectation of a mine hitting an oil tanker and sinking it. Such an accident in itself would deter tankers from crossing the Strait thus causing a disruption in oil supplies until the mines are cleared.

Alternatively, Iran could threaten sinking tankers crossing the Strait even if escorted by the US Fifth Navy in the Gulf. This threat might deter tanker owners around the world from sending their tankers across the Strait under pressure from global insurance companies until tension has subsided. In this way, Iran would have achieved its goal of disrupting oil supplies peacefully.

Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London

Current Saudi storage capacity is about 9 days Iran Production, and usa strategic Oil reserves would max out at 161 days I was pondering if there were increases of storage in other producers that could extend a Iraq boycott without increasing World Prices or, in the event of shutting down the Strait Of Hormuz as a example.

The reality are, that the most of Saudis Oil well's are near 100 years old, end the end comes every day closer !!