Elevated Risk Of Oil Price Spike Within A Year



Posted by Ed 4 mths ago

The shale industry, which helped keep the global supply/demand situation inclined towards the over-supply side, is now showing more and more signs of stagnation.

The Saudi news in regards to the steep decline in Ghawar's production capacity suggests spare capacity may be very limited.

Sanctions on Iran are in effect causing most global spare capacity to become concentrated in the hands of Iran.

In the event of supply shortfalls going forward, there may be no relief available for the market, which could cause a major oil price spike, ending with demand destruction, thus global recession.



Ed 4 mths ago
Saudi Arabia's giant field entered decline.

We recently learned, however, that its largest field, Ghawar, which has been responsible for yielding about half of all the oil that Saudi Arabia produced cumulatively thus far is in a dramatic state of decline.

Until recently, most people thought that it should still be producing or at least have the capacity to produce about 5 mb/d.

As it turns out, that capacity is now down to 3.8 mb/d, as confirmed by a recent audit of Aramco. We can also safely assume that a number of other giant fields, which have been producing for many decades now are also facing production decline, therefore, Saudi Arabia has the sustained capacity to produce about 11 mb/d.

This capacity is still declining as time goes by and will only be stemmed by further capacity expansion projects, which at this point is increasingly hard to do, given limited geological opportunities.


Ed 4 mths ago
The Biggest Saudi Oil Field Is Fading Faster Than Anyone Guessed

It was a state secret and the source of a kingdom’s riches. It was so important that U.S. military planners once debated how to seize it by force. For oil traders, it was a source of endless speculation.

Now the market finally knows: Ghawar in Saudi Arabia, the world’s largest conventional oil field, can produce a lot less than almost anyone believed.

When Saudi Aramco on Monday published its first ever profit figures since its nationalization nearly 40 years ago, it also lifted the veil of secrecy around its mega oil fields. The company’s bond prospectus revealed that Ghawar is able to pump a maximum of 3.8 million barrels a day -- well below the more than 5 million that had become conventional wisdom in the market.

“As Saudi’s largest field, a surprisingly low production capacity figure from Ghawar is the stand-out of the report,” said Virendra Chauhan, head of upstream at consultant Energy Aspects Ltd. in Singapore.

The Energy Information Administration, a U.S. government body that provides statistical information and often is used as a benchmark by the oil market, listed Ghawar’s production capacity at 5.8 million barrels a day in 2017.

Aramco, in a presentation in Washington in 2004 when it tried to debunk the “peak oil” supply theories of the late U.S. oil banker Matt Simmons, also said the field was pumping more than 5 million barrels a day, and had been doing so since at least the previous decade.

In his book “Twilight in the Desert,” Simmons argued that Saudi Arabia would struggle to boost production due to the imminent depletion of Ghawar, among other factors.

“Field-by-field production reports disappeared behind a wall of secrecy over two decades ago,” he wrote in his book in reference to Aramco’s nationalization.


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