Saudi Arabia May Start Unwinding Its Production Cuts Sooner Than Expected

I see that people are still trying to apply past precedents to a completely unprecedented circumstances.
Truth is that in a wake of seizure if Russian forex reserves, Saudis and the rest of oil exporters don't want to accumulate USD and Euro reserves anymore - they can now see how this movie ends -and that's why they are gradually reducing their trade surpluses (i.e. exports).
So, the higher oil goes, they may actually cut their output even more, in order to reduce their USD earnings.
This is a vicious circle that can drive oil all the way to the moon.

When Saudi Arabia announced in June a voluntary production cut of 1.0 million barrels a day (mbd) later extended until the end of the year, all analysts and experts who contribute to oilprice.com without exception interpreted the cut as an attempt by Saudi Arabia to push oil prices up.

I am the only expert who insisted that the cut has nothing to do with the market and prices and everything to do with Saudi production difficulties.

I even said that the cut will give Saudi Arabia time to replenish its inventory of stored oil since my estimate of Saudi production is 6.5-7.0 mbd with 3.0-3.5 mbd coming from stored oil to make up the 10.0 mbd that the Saudis declare as their production.

My rationale is based on the fact that 90% of Saudi production has for the last 70 years been coming from five giant fast-depleting and aging oilfields (Ghawar, Safaniya, Hanifa, Khurais and Zuluf) all of which are more than 73 years old and are being kept producing by an injection of billions of barrels of water. That is why a reduced Saudi production could become a permanent feature of the market.

By 2030 I project that Saudi Arabia could be left with an estimated 120,000-400,000 barrels a day (b/d) to export at which time it would have virtually ceased to remain an exporter.

My supporting evidence is:

1- Saudi Arabia has been sacrificing lucrative crude oil exports since Brent crude rose to $90 a barrel in early September which is higher than the breakeven price of $83-$85 which the Saudis need to balance their budget. Their revenue loses are now much bigger with Brent crude rising above $97.

2- Saudi Arabia is considering investing in Iranian oil and gas. I firmly believe that the Saudi move is a serious attempt to bolster its declining oil production.

3- Saudi Aramco is seeking to acquire more international oil and gas assets.

Since announcing its cut in June until today Saudi Arabia could in theory have added 270-315 million barrels to its inventory. This could enable it to ease its production cut but I have my doubts.

The reason is that if the cut is about Saudi production difficulties, then the Saudis won’t be able to replenish their oil inventory and therefore, their production cut will become a fixture of the market.

Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert

I'm not sure if the KSA has any control over the price of anything least of all oil given the enormous societal problems there. Presumably these high prices exist no different from anywhere else to ahem "pay for everything" ahem.

Good luck with that for anyone. Long $kol strong buy.