This, my friends, is a very important question to be asking right now, and a lot of people want the answer. The Houston Chronicle’s business columnist, Loren Steffy, is in Riyadh today, and he’ll be reporting on the issues and unknowns about Saudi oil for the next week-and-a-half. He has an interesting article, “Saudis’ Oil Secrecy is Double-Edged Sword,” in this morning’s paper, March 30, 2011, and a blog entry from Riyadh today as well.
There are several reasons why we should give a darn about what’s in the ground in Saudi Arabia. I’m going to try to list these in simplified terms to make this complicated issue understandable and a quick read for you. For more comprehensive information, I have some links at the end, and by all means, keep up with Steffy’s blog.
1. As most of you already know, Saudi Arabia has pumped out a huge amount of oil in the past, billions upon billions of barrels. Their oil reserves are supposedly so huge that if another oil-producing nation, such as Libya, goes “offline” for a time, Saudi Arabia can pick up the slack by producing more oil and bringing it to market. They can, theoretically at least, keep oil prices from making huge price swings.
2. They are offering to do just that right now, to the tune of an extra 3.5 million barrels a day. (The U.S. consumes around 21 million barrels of oil a day. We produce around 6 million of those barrels ourselves and import the rest.) See “Energy in the United States.” Also “Crude Oil and Total Petroleum Imports – Top 15 Countries.”
3. Saudi oil ministers would like to see crude prices hover in the $70-$80-a-barrel range. They make more money when it’s $100 a barrel, but demand decreases, sometimes dramatically. Years ago, I remember a comment by Joe Kernen on CNBC’s Squawk Box something along the lines of, “Now we know at what price gasoline would have to rise to “kill the man.” (Wreck the economy.) “$4.00 a gallon ‘kills the man.’ ” That was a few years back. It may take $5.00 gas to bring things to a screeching halt now, but nobody wants that, not even the Saudis. When the U.S. sneezes, the world catches a cold, as the old saying goes. We don’t even want a sniffle folks. Our economy is still on shaky ground.
4. The Saudi economy and population are growing by leaps and bounds. This is significant because they are using more of their own oil at home. Their electrical power needs alone are expected to grow by 6-10% this year, and guess what they use for fuel? Crude oil. See Update 1, published March 24, 2011.
5. The Saudi oil ministry seems to be in the “Don’t Worry, Be Happy” mode. According to Loren Steffy, a ministry advisor reassured him that they could produce as many as 12 million barrels a day above their usual 9.2 million barrels a day. Woo hoo!
6. This sounds peachy, but they won’t divulge their actual production figures from each of their fields, and this makes the market nervous. No one knows for sure how much oil the Saudis actually have left, and they aren’t saying.It would be very helpful to know. There’s probably a lot left to be extracted, but there is also a lot of speculation going on, and a heck of a lot of uncertainly about the whole situation in the Middle East. There seems to be a new revolution or uprising every other day, and some of the countries involved are also major oil producers. Meanwhile, oil is trading, as I write, at $104.00 a barrel. That’s well above the $70-$80 ideal. So why haven’t the Saudis held the line on prices? Why haven’t they pulled the rabbit out of the hat? Are they waiting for us to choke? Are they really able to deliver? Or is uncertainly driving the market?
Stay tuned folks. This is going to get interesting.
For more comprehensive information, please see Loren Steffy’s commentaries on Monday, Wednesday, and Friday in The Houston Chronicle and his blog online. Wikipedia has some good general and specific info on Saudi Arabia. You may also be interested in a WikiLeaks site which claims that Saudi Arabia cannot produce enough oil to keep prices down. Also, “A Detailed Look at the Middle East OPEC Oil Reserves.” Another good site is Energy Trends, which has more information on the topic and a good post on Saudi oil consumption trends.