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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Why Saudi Oil Production Suddenly Dropped

Oil jacks

As if oil market participants haven’t had enough conflicting market forces to digest over the past week, reports that Saudi Arabia’s crude oil production surprisingly dropped in July by around 200,000 bpd from June further confounded the market and sent oil prices rising on Monday.

Last week, several surveys of OPEC’s crude oil production in July showed that the cartel is pumping at high rates, and Saudi Arabia is nearing its production record. But on Friday, Saudi sources and OPEC sources told news agencies that the Saudi oil production was not even close to record figures—and it actually dropped last month compared to June.

The Saudis pumped 10.29 million bpd in July, Saudi sources told S&P Global Platts on Friday. On the same day, two OPEC sources told Reuters that Saudi Arabia’s crude oil production in July was 10.29 million bpd.

According to OPEC’s secondary sources, the ones the cartel uses to calculate quotas and compliance, Saudi Arabia’s oil production had jumped in June by 405,400 bpd compared to May, to reach 10.420 million bpd.

According to a Reuters survey from last week, Saudi Arabia’s production in July was 10.65 million bpd, but exports were close to June’s levels because the Saudis increased domestic use at power plants and refineries. OPEC’s crude oil production jumped by 340,000 bpd in July from June, as Saudi Arabia pumped near-record volumes, the S&P Global Platts survey showed on Friday.

Related: The Next Big Energy Standoff Will Happen Here

The numbers leaked by Saudi and OPEC sources on Friday are in stark contrast with many of the surveys.

Some of the Platts survey participants think that Saudi Arabia may have trouble placing its barrels on the market, and demand for Saudi crude may not have been as robust as the Kingdom had expected.

“I think what they’re trying to do is, there’s a story in the market that the Saudis and the UAE and Kuwaitis and Russians were all vastly increasing production well ahead of any cutbacks from Iran, and I think they are trying to change the narrative,” a Platts survey participant said.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh G Salameh on August 08 2018 said:
    While the Saudis, the UAE, the Kuwaitis and Russians were all vastly increasing production well ahead of any cutbacks from Iran, all of them with the exception of Russia have swallowed hook, line and sinker the hype about US sanctions costing Iran 600,000 barrels a day (b/d) to 1 million barrels a day (mbd). Now they realize that US sanctions on Iran are very hyped, hence the sudden cuts in production by Saudi Arabia to be followed shortly by the UAE and Kuwait.

    As for Russia, it knows from its own experience with US sanctions that these sanctions have had no bite on the Russian economy and therefore they will not have any bite on the Iranian economy. If Russia has been increasing its oil production, it is because most of Russian production is done by Russian private companies with small stake by the government. These companies have invested heavily in the last few years in exploration and in expanding production capacity and therefore they want a quick return on their investments.

    US sanctions on Iran are doomed to fail and Iran will not lose a single barrel from its oil exports for two reasons.

    One is that the overwhelming majority of nations of the world including US allies and major buyers of Iranian crude such as the European Union (EU),China, India, Japan, Turkey and even South Korea are against the principle of US sanctions in general and particularly the sanctions on Iran. They are not going to comply with US sanctions and reduce their purchases of Iranian crude.

    The other is the petro-yuan which has virtually nullified the effectiveness of US sanctions and also provided a viable alternative to bypass the petrodollar altogether.

    Rather than stop buying Iranian crude, US allies like Japan, South Korea and Taiwan are going to seek a waiver from the US to continue buying Iranian crude and will most probably get it. And even if they stop buying Iranian crude completely which is an improbability, China will buy their share.

    Anyway, the Saudis could not have added more than 200,000-400,000 barrels a day (b/d) to their production. 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 recently been steadily declining.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Bob on August 09 2018 said:
    This article is far too optimistic on how the US sanctions will have little effect on Iran, assuming on little evidence, that few nations will cut back their Iranian imports, while China continues to buy its share.

    That view runs counter to verified reports of European oil giants, BP and Total, cutting back all operations in Iran, followed by the world’s largest shipping giant, Maersk, stating it will no longer ship Iranian oil. Major UK insurers have also announced they will no longer insure ships carrying Iranian cargo, without which, global shippers are unlikely to accept the enormous liability for Iranian shipping.

    Companies are fleeing Iran big time, with the latest to announce are Daimler AG, Airbus, and Peugeot, dropping plans for expansion and leaving contracts worth billions.

    If the sanctions are fully implemented, Iran will badly hurt, just as they were when the Obama sanctions forced it to accept severe limits and regular inspection on its nuclear research. More than likely, Iran will be forced to accept further restrictions. The real question is whether the sanctions are aimed at changing Iran’s behavior or changing its regime. If its regime change that’s the goal, nothing Iran does will appease its sanctioners.

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