Saudi Arabia Won’t Bring 2 Million Bpd Online

President Trump said they would. Here’s why they won’t.

By Nick Cunningham, Oilprice.com:

President Trump said in a tweet on Saturday that Saudi Arabia agreed to boost oil production by 2 million barrels per day (mb/d), a claim that surely came as news to the Saudis.

The tightening of the oil market has pushed up prices, which is always a concern for U.S. politicians wary of catching heat from their constituents.

The decision by OPEC+ in June to hike production by 1 mb/d looks increasingly inadequate in dealing with the growing number of supply outages around the world. It’s no surprise that Trump wants more Saudi oil on the market, but he likely misunderstood what the Saudis told him.

Saudi Arabia was producing 10 mb/d in May and recent reports suggest they might add as much as 800,000 bpd to 1 mb/d in July, a massive increase in such a short period of time.

But it’s a far cry from the 2 mb/d that Trump thinks Saudi Arabia will add. That would translate into overall production of around 12 mb/d, which is probably unrealistic for a few reasons.

First, there are technical questions about how far and how fast Saudi Arabia can push its oil fields. Can they ramp up to 12 mb/d? Probably, but there is not a lot of historical evidence to go on. Also, they probably can’t do it immediately, it would take time, perhaps more than a year.

The second – and more important – reason why Saudi Arabia won’t comply with Trump’s wishes to add another 2 mb/d onto the market is that they don’t want to. Ramping up that much would leave the oil market dangerously low on spare capacity, cutting it down to less than 1 mb/d. At that point, any supply disruption would send oil prices skyrocketing. Indeed, it wouldn’t even take a tangible disruption – the mere possibility of another outage would lead to a significant volatility.

Of course, Saudi Arabia is aware of this, which is why it is extremely hard to imagine them adding 2 mb/d. Perhaps that is why the White House walked back President Trump’s comments when they published details of Trump’s conversation with King Salman. “In response to the President’s assessment of a deficit in the oil market, King Salman affirmed that the Kingdom maintains a two million barrel per day spare capacity, which it will prudently use if and when necessary to ensure market balance and stability,” the statement from the White House read.

Increasing supply by 2 mb/d is a very different thing than “prudently” using spare capacity to “ensure market stability.”

Nevertheless, Trump is probably right that the oil market needs more supply. And OPEC could struggle to meet the emerging supply gap, which seems to grow worse with each passing day. Venezuela has lost close to 1 mb/d in the past two years, and could lose another 500,000 bpd over the next year. An outage in Canada is expected to send a little over 350,000 bpd offline for the month of July. And Trump himself could be responsible for disrupting around 1 mb/d – or more – of Iranian supply.

“Don’t forget the one negative to the Iran deal is that you lose a lot of oil, and they got to make up for it. And who is their big enemy? Iran. OK. You think of it. Iran is their big enemy, so they are going to have to do it,” Trump said on Sunday in a Fox News interview. “And I have a very good relationship with the (Saudi) king and with the crown prince of Saudi Arabia and with the others around and they are going to have to put out more oil.”

Over the weekend, the oil market received another jolt on news that force majeure will likely be declared at two additional Libyan export terminals, which has translated into the disruption of more than 850,000 bpd and has pushed the country’s output down to a paltry 300,000 bpd. It’s a staggering loss, and it almost single-handedly wipes out the planned increase from the OPEC+ coalition.

Oddly, oil prices did not spike at the start of trading on Monday, which suggests oil traders clearly didn’t entirely dismiss President Trump’s bold claim that OPEC would add 2 mb/d. The market is probably betting that Saudi Arabia could add more supply than previously indicated.

But as the supply outages mount, Saudi Arabia is in danger of losing control of the market. Riyadh does not want to burn through all of its spare capacity, which means it won’t add something like 2 mb/d. However, that means that the market is starting to look undersupplied for the second half of 2018. It’s a tricky balance for Riyadh, wanting to keep the market balanced but also wanting to keep dry powder for future disruptions.

Most likely, the Saudis will opt for allowing prices to go higher rather than using up most of their spare capacity. By Nick Cunningham, Oilprice.com

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  47 comments for “Saudi Arabia Won’t Bring 2 Million Bpd Online

  1. Old dog
    Jul 3, 2018 at 12:50 pm

    Excellent piece, Nick.

    Do you know what’s Russia’s spare capacity? Putin would likely welcome the opportunity to sell a few more barrels. His buddies are pressing for more money and he’s got a few crises at home.

  2. Nicko2
    Jul 3, 2018 at 1:36 pm

    Higher oil prices are good for renewables, so have at it.

    • Kent
      Jul 3, 2018 at 2:17 pm

      I just got a job close to home. Thinking of buying an electric motor scooter. I’d be the nerdiest nerd in town.

      • alex in san jose AKA digital Detroit
        Jul 3, 2018 at 2:34 pm

        I met a guy years ago at the Mountain View light rail station who got around by Segway. It was actually pretty neat, but thet guy was a huge nerd.

        I also met, at the farmer’s market there, a married couple who were retired SAE (Society of Automotive Engineers) engineers. Of course, in their age range, this means he was an engineer, and she kept his home and washed his socks and cooked his meals. That makes her an “engineer” too and they regarded themselves to be a pair of engineers. Anyway, they’d take their his’n’hers Segways down there and teach people to ride them. I rode one of the things and managed to not get in trouble, so it was all good. They were kind of like the grey old couples who geocache, except their thing was Segways.

        An electric motor scooter sounds like a great idea.

        • steve
          Jul 4, 2018 at 5:49 am

          alex, you have far too much time on your hands

      • Bobby
        Jul 3, 2018 at 7:34 pm

        Black Leather jacket with white t-shirt! at least you could be a cool nerd!

        • Dos Tacos Mas
          Jul 3, 2018 at 9:08 pm

          Black leather jacket that says “Born to be Mild”..

  3. bev K
    Jul 3, 2018 at 1:44 pm

    Stay tuned to the Putin trump summit

  4. Mike G
    Jul 3, 2018 at 2:04 pm

    So Trump was either lying, or too arrogant and stupid to understand.

    • Paulo
      Jul 3, 2018 at 5:23 pm

      Good article Wolf. Timely. :-)

      @ Mike G
      To stupid, I’m afraid, as are all the folks who believe the meme of US energy independence and self sufficiency. Certainly, with higher prices Shale production soars, (despite not making a cent producing oil….even at $100/bbl), but the US is still a net-importer and always will be going forward.

      Current new/proven World reserves are at a level of 11% of the current consumption rate. Imagine if you owned a restaurant with full storage, but you are selling food to customers everyday while replacing just what you sell, and being also fully aware that future food supply is just 11% of what will be needed to stay operating. This can only be recitified by consuming less, or finding more cheap oil. Since the cheap and easy to get oil has already been burned, (decades ago), maybe (just maybe) buying that SUV or truck wasn’t the wisest decision despite the low interest rates and affordable bi-weekly payment.

      I just returned from a trip down Island. Today’s radio news was full of people complaining about the current high costs of fuel, and their lack of resiliency. What they were complaining about is that it costs too much to fill their SUVs and they cannot afford to replace them with something smaller.

      Wait until the Trans Mountain pipeline is completed and 900,000 bbl per day currently headed south to the US from Canada heads west to China, and the remaining oil for sale on continent fetches world price Brent. To put this in perspective the likely production increase by Saudi Arabia will likely top out at 300,000 bbl/day. (Defintely no where close to 2 million)

      Hey, here’s a great idea…lets put sanctions on Iran.

      “My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel.”

      Rashid bin Saeed Al Maktoum

      (Râshid bin Sa`îd Âl Makṫûm was the Vice-President and Prime Minister of the United Arab Emirates and Emîr of Dubai.)…We’re at one of the sons, in the quote. I don’t know which one. yet.

      I drive a Yaris and it doesn’t really bother me if it costs $40 to fill or $80. I traded in my 3/4 ton GMC pickup for it 9 years ago, and received almost $4000 back in incentives to do it! And to think, most US auto manufacturers have discontinued making small cars……THIS YEAR. Unbelieveable.

      • Jul 3, 2018 at 5:44 pm

        Bingo. Gas is cheap this week, so I’ll buy an SUV, because tooling 4000 lbs of steel around to haul 250 lbs of person is so efficient.

        Americans will run out of gas idling in gas lines again.

      • Joe Banks
        Jul 3, 2018 at 6:59 pm

        1919: Two to five years until maximum production
        “In meeting the world’s needs, however, the oil from the United States will continue to occupy a less and less dominant position, because within the next two to five years the oil fields of this country will reach their maximum production and from that on we will face an ever increasing decline.”

        — October 23, 1919 Oil and Gas News

        Hey all you non believers, do you how many times people have said we going to run out of oil? I guess if you keep saying it someday you’ll be right. My dad taught taught me that consuming was good because it created jobs and bettered the world. I believe him. Long live the internal combustion engine!! You can take your crappy EVs. And I mean crap. There’s plenty of oil out there, if not oil then Nat gas. I rather live in a world of doers and creators and believers than whiners.

      • Nicko2
        Jul 4, 2018 at 5:10 am

        The Arab States are investing hundreds of billions in renewable energy and nuclear. That is the future.

  5. baldski
    Jul 3, 2018 at 2:11 pm

    How do we know Saudi Arabia can produce 12 million bpd ? They have never done it before. They are already producing from the Menafi field which is offshore and is lot more expensive to do. You can’t just open a valve and ramp up 2 million bpd.

    • TruthHurts
      Jul 4, 2018 at 2:14 am

      Obviously you don’t know how Trump thinks. I’m gonna bet that if you could see the thoughts in Trump brains, he is imagining a huge valve in Saudi Arabia, and all you have to do is turn the valve and suddenly you get 5 million more barrels of oils per day. That’s how I imagined it when I was a kid; so, I know how he thinks.

  6. Kent
    Jul 3, 2018 at 2:16 pm

    So why not help the Venezuelans? Obviously they’ve under invested in production over the years. We’ve got sanctions on their oil company making it almost impossible for them to raise capital to invest in production. They’re using all of their foreign exchange to make debt payments. And their poor are having to suck it up. Seems like a great opportunity to win some hearts and minds.

    I’m also a bit troubled that the US is behind driving Venezuelan and Iranian oil off line right when millions of Americans have switched to trucks and SUVs with poor gas mileage. Seems like the government is abandoning a key constituency.

    • Laughing Eagle
      Jul 3, 2018 at 4:02 pm

      Kent II is it because you must follow America’s wishes. We decide how you are to function otherwise we punish you.

    • sierra7
      Jul 3, 2018 at 6:14 pm

      US foreign policy vs Venezuela is the dumbest, stupidest, idiotic, empty-headed, vengeful one ever…..oh wait…….

    • nick kelly
      Jul 3, 2018 at 8:35 pm

      I don’t know the situation of this minute (not on Twitter) but for most of the time Venezuelan production has been declining, the US WAS importing it. The US Gulf refineries need a heavy crude.

      Indeed, right or wrong, the US is the main factor driving Iranian crude off the market. The main factor ‘driving’ Venezuelan crude off market is its lack of availability, due to colossal mismanagement and corruption.

      China could absolutely give a s^^t about a US embargo on V even if there was one. But V can’t supply the Chinese tankers waiting off shore as of right now. Can’t or won’t, because these deliveries are for debts owing not always new cash.

    • Frederick
      Jul 4, 2018 at 10:05 am

      Sounds like they have a plan again Kent Worked so we’ll with housing right?

    • Bobby
      Jul 4, 2018 at 4:35 pm

      After 2007 and Chavez’s nationalizing and expropriation of assets, I don’t think any company or country would help out Venezuela for the foreseeable future.

  7. Anthony Aluknavich
    Jul 3, 2018 at 2:29 pm

    Get ready for higher oil prices. Saudi’s can’t bring an additional 1 MM BPD online in short order. Much of their production is from very old fields and is in waterflood which creates a problem for water storage and disposal. IMO the Saudi’s would love to see higher prices and that may be their plan here.

  8. RepubAnon
    Jul 3, 2018 at 2:31 pm

    To be fair, Trump may have been talking about the new total output – 1Mb/day + 0.8 Mb/day = 1.8Mb/day, close enough to 2Mb/day for a Trump Tweet.

    That said, the Saudis can probably get to 3Mb/day if Mike Pence gives the oil rigs a determined stare. Hey, it worked on North Korea – right?
    (/snark)

  9. Jack
    Jul 3, 2018 at 2:50 pm

    Why can’t Trump force the stopping of oil drilled here to STAY here rather than put on the open market? Oh, I forgot. The oil companies don’t listen to Trump.

    • Paulo
      Jul 3, 2018 at 5:28 pm

      And….there is still a shortfall even if they outlawed the selling tomorrow.. They are selling product that cannot be used in the US. That is all they are doing.

  10. Korkin
    Jul 3, 2018 at 2:56 pm

    February 19, 2015, FT:
    “After the oil embargo of the 1970s, Opec wrested oil pricing power from the US. But the shale technology breakthrough is likely to be a far more effective stabiliser of oil prices than the cartel of oil producing countries. Opec is now relinquishing its pricing power. It may never be regained.”
    (Alan Greenspan)
    Do not write to Twitter about greedy OPEC. Urgently call Greenspan.

  11. Jon Dough
    Jul 3, 2018 at 3:34 pm

    Isn’t is wonderful that we are exporting so much of our oil to benefit a relatively few at the expense of the many (American soil = (all) Americans’ Oil ?? ). Now we can play with the global aspects !! Disgustingly short-sighted policies…………….

    • Frederick
      Jul 4, 2018 at 10:08 am

      It’s a global oil market Jon Not sure what your point is actually

  12. Augusto
    Jul 3, 2018 at 3:45 pm

    Not sure I agree with this article. First, no one really knows whether Saudi Arabia can or cannot the extra 2 Million barrels, they are just too secretive about their oil fields, capabilities and capacity. Second, the idea that Saudi won’t produce this extra oil because they don’t agree with Trump’s request, is a bit one sided. The other side of the argument is that the Saudi’s need the US (badly) to support their war in Yemen and to keep the Saudi proxies in Syria alive-they know it and Trump knows it. The final item not discussed, is that once Saudi starts hiking production other countries will want their share or a piece of the action-UAE, Kuwait, and likely Russia. Not sure this is really a very balanced or accurate article.

  13. Max Power
    Jul 3, 2018 at 3:50 pm

    I have a feeling that Trump might end up tapping into the SPR.

    The most important thing we can do is expediate increasing domestic pipeline capacity, the lack of which is seriously hindering the US’ ability to raise crude oil production. Using rail as a substitute to move crude is both limited in capacity as well as dangerous (comparatively speaking).

  14. Prairies
    Jul 3, 2018 at 4:03 pm

    Just a rinse and repeat of the oil market.

    Oil Glut of 2015 causes OPEC to cut production as price collapses, by 2018 all reserves are finally sucked down(not dry, not running out. Just down to the minimum for world consumption.) The price going up isn’t an issue, it’s a goal.

    Every boom and bust since the 70s has had some far fetched story behind the shortage. Only to be proven wrong as nations ramp up production with ease, if they ramp up production again the cycle will continue. It should be called price fixing, the market doesn’t dictate the value, the suppliers do as they control the amount on the market.

    Next oil bust will happen before 2021 if they ramp up too fast, but it will happen by 2025. Not many cycles have made it longer than 10 years.

    • Paulo
      Jul 3, 2018 at 5:49 pm

      You are making an assumption there are enough discovered reserves to ramp up production. New reserves are at 11% of current consumption rates…pure and simple fact.

      Get used to rapidly oscillating boom and busts as the Peak Oil story unfolds. The busts will be when economies collapse. Conventional oil peaked in 2005, and then again in 2009 (barely above the 2005 level). Since then conventional oil has been replaced with Shale and heavy Oils Sands bitumen. Good thing the shale light waste can be used for diluting bitumen…think mixing naptha (camping gas) with tar to make it light enough to flow. And we are lucky to have it.

      Funny coincidence, many of the same folks who don’t accept the finite story of resources (Peak Oil) also don’t accept climate change or global warming. And tell that to folks who live in Foster City CA, Miami, or the Maldives. -)

      13 years ago my son my son graduated high school and did not know what to do with his life? I recommended electrical trades, for when the oil age declines we will still need people who can work with electricity. He currently builds electric shovels and trucks for the oil sands mining industry; the job considered to be an elite trade in that field. My wife and I moved rural and started over, and I have spent the last 15 years researching Peak Oil (maybe 2 hours per day). There have been some surprises along the way with shale and better fracking and drilling techniques, but the over all story is unfolding as predicted. This is the undulating plateau before the inevitable decline of the oil age. Going forward the important story will be about transit, car pooling, walking, and liveable cities.

      • Augusto
        Jul 4, 2018 at 8:23 am

        Paulo, I remember reading the Peak Oil thesis, Twilight In The Desert by Simmons, just as shale oil was ramping up, called “unconventional” back then. Simmons book was brilliantly researched, and might have come to pass, if it wasn’t for two things, technology/new know how and money/investment. I remember old time drillers, who recommended the book to me, sceptical as the saw oil and gas coming out of geologic formations they’d spent their lives drilling through or bypassing-dead oil, dead money, now very real. When oil hit $150, our company was looking at Gas to Liquids, or converting Natural Gas to gasoline, and coal to oil, an old technology. Having worked the greater part of my life in Oil and Gas, I can honestly say that running out of oil is an exploration in science fiction. Our world may be imitating a Mad Max movie, but it’s not from the absence of “precious gasoline”.The simple fact of the matter is the Earth’s crust is literally soaked and layered with hydrocarbons, it’s just about the amount money, technology, and human resources to get it out. Of course, releasing the residual by-product of millions of years of organic material on the earth’s surface and atmosphere may kill us all, but I think we are more likely to choke to death as we are to freeze in the dark. Hopefully, other technologies will come along long before we get to that stage…

        • Lindsay Berge
          Jul 4, 2018 at 9:35 am

          The issue is not the monetary cost of recovering the hydrocarbons but the energy cost. The analogy I like is that you may pay $1 for an apple, or even $10 for an apple if you really want an apple but you would never pay two apples for one apple.

      • Frederick
        Jul 4, 2018 at 10:12 am

        Paulo This is what amazes me the shortsightedness of most Americans Prices drop and half of us run right out and buy a gas guzzler Seems people never learn Maybe it’s my German parents but I’ve always conserved energy wherever possible

      • Prairies
        Jul 4, 2018 at 10:22 am

        I know oil is a finite resource, but it isn’t as scarce as Peak Oil is making it seem. I am standing above an oil reserve that was untouchable 30 years ago. But with horizontal drilling and proper fracking techniques they were able to access it 10 years ago. Until they hit these technological breakthroughs on battery tech and the lack of silicon for solar we will be stuck at oil.

        The tech will evolve, but until then we can expect more boom and bust from oil. So next time oil drops to $30/bl buy it up, sell at $70 and repeat. Until renewables do something about it anyway.

  15. raxadian
    Jul 3, 2018 at 6:33 pm

    In less that five years, Wind Power and Solar Power will be the cheapest energy source avaliable.

    That might make oil prices go down… or not.

    • Prairies
      Jul 4, 2018 at 10:31 am

      Do you have billions of solar panels in your backyard that no one knows about?

      Give up the details, to this massive supply that will be fully implemented in under 5 years.

    • Mean Chicken
      Jul 4, 2018 at 7:21 pm

      I’ve been hearing that solar and now wind, are already cheaper, now I hear that won’t happen for another 5 years?

  16. Sinbad
    Jul 3, 2018 at 10:02 pm

    I question the Saudi ability to increase production in the longer term, they aren’t invading Yemen for the rugs.

    But why isn’t the US taking advantage of the demand to sell American oil?

    • Nicko2
      Jul 4, 2018 at 5:15 am

      US is now exporting huge quantities of LNG.

    • Augusto
      Jul 4, 2018 at 9:01 am

      Sinbad, I really think what the Saudi’s are worried about is about the establishment of a Shia puppet State of Iran in Yemen. The so-called Shi’a Houthi’s essentially control the Former nation of North Yemen made up of a majority of a Shi’a sect called the Zaidi. The Zaidi population extends across the Yemen border into Saudi. Although considered moderate, the norm for a poor minority religious group, the Zaidi have are been radicalized by Iran who are pushing a pan-Shi’a agenda throughout the Middle East,using their oil money to pay for it. Once Iran sets up a proxy Houthi State, the will move on the Zaidi of Saudi. Saudi is very weak, it’s troops in Yemen made up substantially of third world mercenaries…in other words, I think it’s about the Kingdom’s survival, not oil.

      • Frederick
        Jul 4, 2018 at 10:14 am

        If I were the Yemenis I’d be more concerned by a Sunni puppet state in Saudi Arabia They seem to be far more dangerous if you look at things outside the lens of US propaganda ie CNN , MSNBC, Bloomberg

  17. Paul
    Jul 4, 2018 at 5:05 pm

    This article has zero factual information and a mile of innuendo. First, Saudi’s big fields are power water driven secondary production fields. All they have to do is release back pressure to produce more.

    As the swing producer, they designed their fields to be able to add capacity that fast. The reasons they might not is that SA typically doesn’t sell spot oil and their customers may not want 2 million barrels more. Also, oil pricves always rise in July because of refinery issues. 2 million barrels is 4 Suezmax tankers. hardly a lot of oil.

    KSA has maintained stability as their goal. If prices get two high, frackers have more $$ to drill. This is contrary to the wishes of a monopoly

    As to the other points,

  18. Mean Chicken
    Jul 4, 2018 at 7:14 pm

    Does US shale production remain robust?

    • Max Power
      Jul 5, 2018 at 5:54 am

      US production is robust but a lack of pipelines constrains its ability to bring additional production to market.

  19. Why Tax
    Jul 5, 2018 at 1:55 pm

    The guy calls up another country on behalf of its people to ease the pressure of rising gas prices (instead of eating cheeseburgers in bed while watching gorilla channel).

    Gets teased for the phrase ‘maybe up to 2,000,000 barrels’.

    Right now it is all speculative. We will only know in a month or two by how much Saudi increased the oil output (if at all). Unless the goal is to just make fun of someone for trying, this whole article is pointless.

Comments are closed.