No one can provide alternative to Saudi oil

Crude oil prices fluctuated turbulently in the first couple of days in March following a report about an explosion on Saudi Arabian pipeline. NYMEX WTI April crude oil futures contract surged above $110 per barrel for the first time since May 2011, but started falling after Saudi officials denied the news. Crude oil prices eventually ended the week at negative range compared to previous week.

Recently, South Sudan halted its 350,000 barrels per day crude oil production because of conflicts on sharing oil revenue with neighboring Sudan. Then Sudan's bombing attack against oil fields in South Sudan was reported. However, these situations failed to lift crude oil prices.

The reason why only Saudi Arabia has special influence to the market is not only the country's large crude oil output volume but also its ample spare production capacity.

Saudi Arabia increased its crude oil production level from around 9.0 million bpd to the second half of 9 million bpd after the civil war entirely hampered Libyan output.

Libyan civil war boosted WTI crude oil prices to $150/bbl in April last year, but urgent release of strategic petroleum reserve by Organization for Economic Co-operation and Development member nations and Saudi Arabian apparent output hike led the market to below $80/bbl later.

Libya's crude oil production is recovering sharply since Q4 2011, while Iraqi output is increasing steadily as well. Iraq has also started operations at its 400,000 bpd new oil export terminal at Persian Gulf.

Iraqi crude oil output is expected to grow from present 2.7 million bpd to 4 million bpd by mid-2014. Libyan production, which is estimated at 1.3 million bpd in February, is also projected to rise to 2 million bpd within five years.

Tensions on Iran is supporting the crude oil market presently, but decrease of Iranian oil supply is unlikely to affect the market seriously except for war case. Even though increasing refinery costs caused by different type of alternative crude oil supply may affect petroleum products markets.

Currently, most members of Organization of Petroleum Exporting Countries including Iraq and Libya are being estimated to produce crude oil close to their capacity limit. Russia, which is currently producing about 10.3 million bpd, is unlikely to have enough spare capacity as well.

Saudi Arabia was estimated to be pumping 9.8 million bpd of crude oil in February maintaining nearly 2.5 million bpd spare capacity. The kingdom is the sole supplier that has an enough spare capacity for boosting crude oil production in case of emergency. Conversely, no one can provide plenty of alternative crude oil if Saudi Arabia fails to supply.
Crude oil prices are likely to show a crazy surge if the U.S. and other nations do not decide urgent and massive release of oil reserve.

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