The Oil Drum

99 comments on EIA reports on April

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westexas on July 3, 2006 - 8:40am

"Is there anyway to find out what really happening in SA ?
The symptoms look like a peak from the outside."

Let's look at how Saudi Arabia responded to supply disruptions in 1973 versus 2005

As I have previously noted, based on Khebab's HL work, Saudi Arabia (the current swing producer) in 2005 was at about the same stage of depletion at which Texas (the prior swing producer), in 1972, started its so far terminal decline in production.

During the 1973 Arab Oil Embargo, Texas had started declining. Note that the "Embargo" lasted for 60 days or so. In fact, if you look at Saudi oil production during this time period, they showed rising oil production. The reason that oil prices went up by about 1,000% from 1973 to 1980 was because of temporary supply/demand imbalances--the embargo was just a trigger.

It's instructive to compare the Saudi production response in the Seventies to their hurricane response last year. From 1970 to 1973, Saudi oil production went up by about 100%: http://www.eia.doe.gov/emeu/ipsr/supply.html

Last year, after the hurricanes hit, the Saudis were unable to increase their production, and Saudi oil production started showing a decline, which required (as far as I know) the largest ever coordinated release of emergency petroleum reserves.

It appears that releases of emergency reserves represent the new source of "swing production." Also, note that the rig count explosion on Stuart's excellent graph really kicked off in early 2005.

To summarize: (1) Saudi Arabia, based on the HL method, is at about the same point at which Texas started its decline; (2) Saudi Arabia in 2005, like Texas in 1973, was unable to respond to a supply disruption and (3) Saudi Arabia, just like Texas in the Seventies, has embarked on a very aggressive drilling program.

(After increasing the number of producing wells in Texas by 14%, from 1972 to 1982, the Texas oil industry succeeded in slowing the decline in production to only about 30% from 1972 to 1982.)

BTW, note that the EIA data continue to show that world crude + condensate production is down about 1% since December, while (light/sweet) oil prices are up close to 25%.