2012 September 7

The Master Resource Report  2012-09-07

Citigroup said What…??

The concept of “Net Exports” is not new to the readers of The Master Resource Report but it appears that the experts at Citigroup just discovered it.

Bloomberg started its article this way. “Saudi Arabia, the world’s biggest crude exporter, risks becoming an oil importer in the next 20 years, according to Citigroup Inc.”

The Telegraph in England hit a little harder. “A 150-page report by Heidy Rehman on the Saudi petrochemical industry should be sober reading for those who think that shale oil and gas have solved our global energy crunch.”

Clearly Saudi Arabia will not become a net importer of oil. Who will they import from? The United States…?

The critical question for net importers is when will the decline in net exports become clear to the markets and what will the price response be. Best guess, sooner rather than later and not good.

Jeff Brown has been on top of this issue for years and is the go to guy for perspective on what might be ahead. In a recent e-mail exchange Jeff pointed out these two questions which by the way Citigroup has not evolved far enough to yet grasp. In fact at the June “Oil Wild Cards” conference in New York that Ravenna Capital Management co-sponsored Ed Morse, Managing Director of Citigroup Global Markets dismissed Saudi Arabian net exports as being any concern in the future. Makes one wonder if the left hand at Citigroup knows what the right hand is doing.

(1)  Why did Saudi net exports increase from 7.2 mbpd in 2002 to 9.1 mbpd in 2005 (BP), as the key global annual crude price (Brent) more than doubled from $25 in 2002 to $55 in 2005?

(2) Why did Saudi net exports decline from 9.1 mbpd in 2005 to 8.3 mbpd in 2011, as the key global annual crude price doubled again from $55 in 2005 to $111 in 2011?

For more on this issue take a look back at the February 17th web posting for a video of my friend Mark Lewis on CNBC talking about the Saudi net export issue. There is also link to a copy of his report covering the impact of fuel subsidies in net exporting countries.

When the global oil markets wake up to this issue surrounding net exports a permanent scarcity premium will begin to be priced into the global oil supply. Maybe the Citigroup report is a clue it already has begun to creep in. It also could be a good explanation why Citigroup and others are predicting that the U.S. will not be importing oil from the Middle East by the mid 2020’s; there simply won’t be any available for export.

Gasoline demand continues a late summer climb

The table and graph below are from This Week In Petroleum published by the EIA. U.S. demand continues to cling to the region around 9 million barrels per day as it has throughout the recession and recovery.

Click image for larger view

Diesel demand continued its gradual slip behind year ago levels as national prices climbed well above $4/g.