2011 June 17

The Master Resource Report  2011-06-17

Saudi oil production & consumption.    (page 1 )

U.S. and Saudi oil swap.    (page 2 )

Water and energy.   (page 2 )

Mexico’s oil production status.   (page 3 )

U.S. gasoline consumption compared to pre-recession.   (page 3 )

Liquid fueled battery.   (page 4 )

Opec – Its first trillion dollar year

The Financial Times commodities editor Javier Blas reported that according to the U.S. government Opec is on course for a very profitable year indeed.

“The forecast of earnings of $1,034bn this year represents a hefty 32.5 per cent increase from the nearly $780m that Opec earned last year. Even, in real terms, adjusted by inflation, Opec earnings would also hit a record this year and nearly double the earnings level set in 1980 during the second oil crisis.”

While this is interesting the really important part of the FT article concerns Javier Blas’s remarks on just how important this level of income is to the Opec members. If for no other reason than this the days of cheap oil are over. The new cheap is now probably $80/b.

“Opec nations desperately need higher revenues, however. Take Saudi Arabia, a traditional price dove. Riyadh has boosted public spending hugely in an effort to forestall the political unrest sweeping the Middle East. Jadwa, a Riyadh-based investment firm, estimates that Saudi Arabia would require oil prices at nearly $80 a barrel to balance its budget, up from less than $40 five years ago.

Worse, the Institute of International Finance, an association of top banks, estimates that Saudi Arabia might need oil prices to average $110 a barrel by 2015 to balance its budget. Only a decade ago, Riyadh was able to break even with oil prices at $20-$25.”

It is this type of coverage that makes the Financial Times required reading everyday in our office.

IEA is getting nervous

“In its monthly Oil Market Report the IEA said Opec needed to boost production to 30.7 million barrels per day in the third quarter, up from 29.7 million bpd during the previous quarter, to meet demand.”

It is important to remember though that not just any oil will do. More heavy sour crude will do very little to relieve pressure on the global market for light oil. According to “…Harry Tchilinguirian, head of commodity market strategy at BNP Paribas. “There is no available spare production capacity in light oil.”

In a Forbes article this week Anas Alhajji, chief economist at NGP Energy Capital Management in Dallas made this comment about Opec’s ability to meet the call on production. “OPEC’s power to bring down oil prices is evaporating. With production capacity for high-quality, low-sulfur crude offline in Libya, Yemen and Sudan, the cartel is unable to compensate. The Saudis have been trying — in the wake of Libya’s outages Saudi Aramco concocted a blend of crudes seeking to replicate Libya’s, but buyers have been reticent.”

Remember Opec member countries like Iran and Venezuela have no spare capacity (they are serial cheaters on the quotas) and neither do the non-Opec producers like the U.S., Russia and China. So it will fall to a small group led by Saudi Arabia to meet that supply need and that is beginning to look a little shaky. It may even be impossible if the quality of supply is taken into consideration.