So, ARE The saudis Tapped Out? (Oil Production)?

saudi Arabia has responded to GWB’s please to increase crude oil production-by a paltry 200,000 barrels/day. The saudis have long maintained that they could double production-if they wished to, yet modern analysis (see “TWILIGHT IN THE DESERT”) suggests that Saudii oil production has actually peaked-and is about to decline.
is there any way of verifying how much oil the saudis still have in the ground?

My understanding was the current bottleneck was refining capacity more than ability to suck it out of the ground.

I have no idea on the Saudi ability to increase production but if refining capacity is the issue then not sure how much the Saudis pull out of the ground will matter anyway.

If that were true, I would suspect prices for oil would be more or less flat while the price for refined products (like gasoline) would climb. This hasn’t been the case, both prices have been climbing for several years at more or less the same rate.

As to the OP, wiki lists Saudi oil reserves at several hundred billion barrels. I know nothing about drilling for oil, but if they wanted to produce more, couldn’t they just sink a bunch more wells and then pump out those reserves faster. Granted the only source for the size of these reserves may be the Saudi gov’ t itself (I don’t know, the wiki isn’t well cited), but I have trouble believing that they could pass a lie on that scale without being called on it by the various geologists of the world.

The figures on oil reserves for many countries, including Saudi Arabia, are decades old, and in a fair number of cases, also including Saudi Arabia, have never been independently verified: we’ve got to take their word for it.

So it’s not the sort of thing that a geologist could call them on.

However, peak-oil guru Matt Simmons called them on it. That was a few years ago. He’s looking awfully smart these days.

BTW, if the Saudis can increase production and the currrent price level is a bubble, then it would make sense for them to increase production. But if prices are a simple matter of finite supply meeting increased demand at any fixed price, then it makes sense for the Saudis to not increase production, because the oil will be worth more later.

If the Saudis can’t increase production nontrivially, then it’s all moot.

I had thought this was a lesson learned after the oil embargoes of the 70’s. While it had a temporary effect it caused Americans to run for more fuel efficient cars and such and eventually turned the oil prices around to bite them in the ass.

You can already see that starting now. People are unloading their Hummers and angling for more fuel efficiency not to mention spurring serious looks at forms of biofuel (beyond ethanol…think large algae farms).

It might take several years but the effect should be felt. However, they may then figure India and China will be oil hungry enough to make up the difference and not care.

Just thinking out loud…I do not know the numbers on all that.

I read that these would dry up the west with their massive water requirements. If that is true, it’ll never happen.

Nope. Check out the PetroSun site. Salt water algae, at really high oil production levels per acre, too. This will be a huge source if it pans out the way they hope.

Whats in it for them.? They are making tons of money. Why crank out and end the only money maker they have.? They actually are pretty smart businessmen and have to plan for the future of their own countries.
You think they should increase production and lower prices. How is that a compelling scenario for them.? They do more work, use up their product and make less money.

According to wiki, current Saudi oil production accounts for something like 7% of the global total. So according to my back of the envelope calculation, if they increased production by 50%, they would loose money only if a 3.5% increase in global production caused global prices to drop by more then a third. I’m not an economist, but that seems pretty obviously unlikely, so I surmise they could make more money today if they pumped more oil then if they left it in the ground to increase demand.

Also, as Wack-a-mole suggests, increasing supply now may stave off importers adopting alternative fuels, which will decrease future demand and lower the future price of the oil they leave sitting in the ground.

In short, I’m skeptical of both explanations: either that the Saudi’s will not meaningfully increase production because they have inadequate reserves to do so or that they think increasing supply will so affect global prices that they will make less money.

They would make less money if prices dropped. I don’t say they wont make money. They will make less.

Umm…OK? And I’m saying you’re wrong. They will not make less money, they will make more money. The small drop in the price per barrel caused by the increase in supply will be more then made up for by the larger number of barrels they will be selling.

The Saudis may be screwing themselves, if the oil price becomes astronomically high then other methods of gaining oil like tar sands, shale, coal conversion will become economically viable and put them out of business. Eventually a price ceiling will be reached.

Well, do any of the oil producing countries in the Middle East have any sort of long term financial plans aside from producing sky scrapers in the desert?

200,000 bbl is certainly paltry. Iran seems to be storing up a large amount of unrefined oil. I suspect not because it wants to but because it can’t arrange for the stuff to be refined.

As of early to mid June:

farsnews.com

Best predictions are for the current oil price bubble to pop some time in the next three months. That’s probably mainly of interest to those who like to dabble a bit in share trading and futures. :slight_smile:

The amount of oil is finite. They increase production and the price goes down ,how does that benefit them. The total amount of money brought in for oil will go down. The amount of work would go up.

I’m honestly not sure how to respond except to refer you back to my analysis in post #9, where I’ve attempted to show that under my assumptions pumping more oil now will almost certainly net them more money then continuing at current production, despite the small drop in current prices. Again, I’m certainly not an expert, there may be a flaw in my reasoning, so if you see such a flaw please tell me specifically what part as I’d be interested in seeing where I went wrong.
Similarily if you think its my assumptions that are incorrect, please feel free to say specifically why. For reference, those assumptions were: a rise of a few percentage in global production will not create a fall of over a third in global prices and that the current price of oil (and concerns over environmental and security factors) is high enough that countries will increase their fuel efficiency or use of alternative energy sources significantly more then they would if gas prices were lower.

Maybe Brigham Young was right all along.

The only flaw I see is if they increase production (if they actually CAN increase it in any substantial way without capital investment in new wells and new pumping infrastructure…and if doing so would be worth it) and if other countries follow suit (again, if they CAN), they you might get a situation similar to the 90’s when production outstripped demand and prices went down due to a glut of oil on the market.

That said, I seriously doubt that demand will go down or that oil on the market will go unbought in the current environment…so, you are probably right that whatever the Saudi’s can increase production to (with their current infrastructure) probably won’t decrease the price of oil by a hell of a lot. Which sort of begs the question…why haven’t they done so?
As for the OP…no one really knows except the Saudi’s, and they are playing their cards close to the vest. All we have to go on are their own statements, which can probably be taken with a grain of salt. My guess is they have SOME wiggle room to increase production a few percentage points…but that would be it without a huge capital investment in new oil infrastructure and development.

-XT