Saudi Arabia is on a drilling binge—and looks likely to again dominate global oil | World Defense

Saudi Arabia is on a drilling binge—and looks likely to again dominate global oil

BLACKEAGLE

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Saudi Arabia is on a drilling binge—and looks likely to again dominate global oil

Drill, baby, drill. (AP/Hasan Jamali)

Across the globe—in the US, Europe and China—oil companies big and small are scrambling to stay afloat, cutting expenses to the bone, and shelving flesh-and-muscle projects worth a collective millions of barrels a day in the future market. The likely repercussions include lower-than-expected profit in coming years, a crude oil shortage, and stunted global GDP growth.

But into the breach has marched Saudi Arabia, the world’s go-to swing producer since the 1970s. While ExxonMobil, Chevron, Shell, and BP are slashing investment by tens of billions of dollars, Saudi Aramco’s is soaring: As of March, the number of rigs drilling for oil in the kingdom had tripled to 69, from 23 in January 2011.

Many leading analysts continue to argue that the Organization of the Petroleum Exporting Countries (OPEC), including Saudi Arabia, has lost its punch, and no longer heavily influences the oil markets. Yet oil prices are trading at a five-month high ahead of an April 17 meeting in Doha involving Russia and some members of OPEC. They are up again this morning in European trading, to $43.37 a barrel.

This run-up hinges on confidence that the petro-states will figure out a formula to more or less freeze global production, begin to stem the oil glut, and push prices back up. In other words, the oil traders bidding up prices believe that OPEC can grow back its teeth.

But petro-states are unlikely to corral the oil surplus, because one of the group’s most important members—Iran—will reject the production freeze. Having just escaped Western sanctions, Iran is insisting on adding hundreds of thousands of barrels to its exports in order to make up for lost profits during the three-year sanctions period. It won’t surrender this position.

But the Saudis are reasserting themselves
Still, there is something to the market’s confidence. The Saudi drilling binge reflects its determination to maintain market share, and thus local and geopolitical influence, once the dust settles and prices are at a materially higher band than the current doldrums.

Neil Beveridge, an analyst with Sanford Bernstein, says that since the 1990s, the Saudis have on average held 12% to 13% of the global oil market (see chart below). Right now, this means producing more than 10 million barrels of oil a day, with about 2.5 million barrels a day of production capacity kept idle for use if they choose to try to balance the market.


(Sanford Bernstein)
By 2020, Beveridge reckons that global oil demand will have risen to 100 million barrels a day, up from the current 93 million. If the current proportions hold, by that time the Saudis will have to produce 12 to 13 million barrels a day. If you tack on the usual 2 million barrels a day of spare capacity, it looks like the goal for total Saudi production capacity is 15 million barrels a day.

“I think that is what is really happening here,” Beveridge told Quartz. “I don’t think this is to grow share but to defend it and meet a market where demand is growing fairly strongly.”

This view is a bit of an outlier. Jamie Webster, an oil analyst in Washington, DC, argues that the Saudis have had no specific plan, other than reacting to events as they happen. In terms of Saudi drilling, this is to maintain current production, not to increase capacity, he told Quartz.

What the consensus seems to miss, but Bernstein’s Beveridge captures, is how wrapped up the Saudis are in holding onto their stature as oil’s senior statesman. A new Saudi generation is moving into power, but that remains a deeply held self-image. And its influence is based on how much oil the country drills and exports.
There’s one major perk of globalization that only applies to rich people — Quartz
 

Combat Medic

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The Saudis are indeed smart and that is one of the games they are able to effectively play. All major companies have gone down, thousands of jobs lost and here we see the Saudis coming to rescue them but on their own expense.;)

Well done all I can say.

 

Corzhens

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My impression of Saudi Arabia is that it is needing lots of money and trying to rake as much money as it can as fast as it can. Maybe that need for money is connected with the ISIS problem. Or maybe it is in preparation for the shifting of the world into alternative fuel like solar energy, wind power and other clean energy. And in fairness to Saudi Arabia, it is being looked at with awe by other countries.
 

explorerx7

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The Saudis action is twofold, it will have some revenue to fund its expansionists desires in the Middle East and It's also using this measure to suppress the Iran's earning capacity by helping to keep oil prices at a low level because Iran is seeking to gain all the revenue it can get to make up for that which it had lost during the period of the sanctions against it. We all know of the ongoing rift between Saudi Arabia and Iran so the Saudis are doing their best to keep oil prices at a low level to Spite their enemy, the Iranians.
 

silentwarfare

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The Saudis are in it to win it at this point. They may be trying to build up their physical oil stores and reserves financially to be able to have more options dealing with Iran through barter, trade, or exchange of services and that oil on a short-term basis to stabilize themselves and destabilize anyone else who gets in their way. It's a smart move, and the Saudi Arabian people and government alike would benefit from it strategically. There may be other reasons that I'm not addressing or seeing, but this is what I thought of when I saw what they've been doing and figured on why.
 

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