The Kingdom of Saudi Arabia, the world’s biggest oil exporter, is planning to increase its output next month by about a half-million barrels of oil a day of its light, sweet crude oil, according to analysts and oil traders who have been informed by Saudi officials. This announcement alone, plus the Republican party political movement called “Drill Here — Drill Now!” is making it into the media.
The increase could bring Saudi output to a production level of 10 million barrels a day, which, if sustained, would be the kingdom’s highest performance level in history. The move was seen as a sign that the Saudis are becoming increasingly nervous about both the political and economic effect of high oil prices. In recent weeks, soaring fuel costs have incited demonstrations and protests from Italy to Indonesia.
Saudi Arabia is currently pumping 9.45 million barrels a day, which is an increase of about 300,000 barrels from last month.
The Saudis are concerned that today’s record prices might eventually damp economic growth and lead to lower oil demand, as is already happening in the United States and other developed countries. The current prices are also making alternative fuels more viable, threatening the long-term prospects of the oil-based economy. The high prices have also made it profitable to stimulate mature oil wells in Texas and California.
President Bush visited Saudi Arabia twice this year, pleading with King Abdullah to step up production. While the Saudis resisted the calls then, arguing that the markets were well supplied, they seem to have since concluded that they needed to disrupt the momentum that has been building in commodity markets, sending prices higher. That creates panic. There seems to be no end in sight.
The Saudi plans were disclosed in interviews with several oil traders and analysts who said that Saudi oil officials had privately conveyed their production plans recently to some traders and companies in the United States. The analysts declined to be identified so as not to be cut off from future information from the Saudis.
Last week, King Abdullah also took the unprecedented step of arranging on short notice a major gathering of oil producers and consumers to address the causes of the price rally. The meeting will be held on June 22 in the Red Sea town of Jeddah.
Oil prices have gained 40 percent this year, rising to nearly $140 a barrel in recent days and driving gasoline costs above $4 a gallon. Some analysts have predicted that prices could reach $200 a barrel this year as oil consumption continues to rise rapidly while supplies lag.
The growing volatility of the markets, including a record one-day gain of $10.75 a barrel last week, has persuaded the Saudis that they need to step in, analysts said. The Saudis and Republicans are the only groups trying to lower the price of crude. But you won’t read that in your mainstream newspaper on watch it on NBC.
Did you know…
Until recently, only 35 percent of oil has been extracted from reservoirs. Oil resides in porous rock formations, it is not in the sate of underground pools as many consumers believe. Today, oil companies such as Chevron, Shell, Halliburton and Schlumberger, have developed stimulation methods to revive mature wells. There are fracturing and perforating techniques, 3-D seismic methods to clearly see trapped reservers that have been missed by the original well. There are now, steerable drill bits that can capture those trapped oil reserves and pinpoint stimulation on targeted areas.