Can Saudi Arabia boost oil output in times of tight supply?

6 March 2011 6 March 2011

BonTrade

With recent unrest sweeping the Middle East and Northern Africa, oil supply concerns are a big factor pushing prices higher, and one possible solution to capping prices has been raised that Saudi Arabia, OPEC’s leading oil exporter should lift oil output quotas to balance any shortfall in oil supply. But is this a real possibility, or just small talk?

Oil Output – The World Leaders

Outside club OPEC, the world’s leading oil exporter is in fact Russia, not Saudi Arabia. With oil prices well over $100 a barrel, Russia stands to gain a great deal from this latest situation (in terms of oil revenue) and this can be seen in the value of the Russian Ruble, which has seen recent gains on the global currency markets.

Just take a look at the last 10 years of oil output data from Russia (data: EIA):

Russian Crude Oil Output to 2010

Then, compare that to the last 10 years oil output from Saudi Arabia (data: EIA):

Saudi Arabia Crude Oil Output to 2010

The charts seem to paint their own picture of what’s going on for the oil exporting giants as of late. As for Russia, oil exports have seen a steady increase, while with Saudi Arabia, it seems that even in the oil price shocker of 2008, Saudi Arabia only managed to increase oil output by around a million barrels, to around 9 million barrels per day (which is the current stated output for the country).

WikiLeaks – Saudi Arabia Reserves Overstated by 40 Percent?

In Febraury 2011, WikiLeaks released a set of cables which contained details that Saudi Arabia’s crude oil reserves may have been overstated by as much as 300bn barrels, or nearly 40 percent.

According to the cables, which date between 2007 and 2009, geologist and former head of exploration at the Saudi oil monopoly Aramco Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then, possibly as early as 2012, global oil production would have hit its highest point. This crunch point is known as “peak oil”.

Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment.

In the last two years, other senior energy analysts have backed Husseini. Fatih Birol, chief economist to the IEA commented to reporters last year that conventional crude output could plateau in 2020, a development that was “not good news” for a world still heavily dependent on petroleum.

Russia Taking the Lead for Oil Output

Meanwhile Russia has kept crude oil output near a post Soviet record in February, at 10.23 million barrels a day, 0.2 percent higher than a month earlier and 1.5 percent higher than the same month last year, according to statistics from the Energy Ministry’s CDU-TEK data unit.

Russian crude oil exports advanced to 5.28 million barrels a day, rising 2 percent from the previous month and 1.1 percent from February of last year, according to the statistics.

Prime Minister Vladimir Putin pledged that Russia’s oil production will remain above 10 million barrels a day for at least a decade, after reaching a post-Soviet high of 10.27 million in October. Putin ordered the government to create tax incentives so that companies will invest in new projects.

Russia’s Soviet era crude oil output peaked at 11.48 million barrels a day in 1987, according to BP data.

Can Saudi Arabia Boost Oil Output Further?

With protests planned in Saudi Arabia for Friday 11th March and beyond, it’s going to be an important marker to see if Saudi forces can contain any unrest that could develop in the country.

Saudi Arabia produces and exports over 10 percent of daily crude oil usage globally, hence firstly, the country needs to ensure that current oil output is unharmed, then maybe look to see if they indeed have the resources to increase oil supply from there.