In a recent interview on the Keiser Report I found myself casually mentioning that Russia had now surpassed Saudi Arabia to become the number one oil producer in the world. This is not an event that happened last month, either. The leap forward emerged as far back as 18 months ago, in October of 2008. It seems in Russia, big things often unfold in October.
As subscribers to Gregor.us Monthly know, I like to break up the world of global oil production into four parts. There is OPEC, anchored by Saudi Arabia. And then there’s Non-OPEC, anchored by its top producer, Russia. With the most recent EIA data out for April crude oil production, I made up charts for Saudi Arabia, and Russia, and thought it might be instructive to pose a few questions. First, let’s take a look at Russia:
As I have discussed previously, without Russia the world of Non-OPEC supply would have fallen down into a hole shortly after 2003. Indeed, without Russia Non-OPEC production (Non-OPEC ex-Russia) would have fallen every year from 2004 through the present day. What’s been a surprise is that Russia has been able to sustain its current ~9.5 mbpd for over four years now. A number of analysts are reasonably confident that Russian oil production has now entered a plateau. Now let’s look at Saudi Arabia:
As we look at the chart of Saudi Arabia crude oil production, I like to consider the following propositions:
1. This is a chart of the central bank of oil, with lots of spare capacity, that works to dampen oil price increases.
2. This is a chart of the central bank of oil, with lots of spare capacity, that works to perfect oil price increases.
3. This is a chart of what had once been the central bank of oil, as it transitions to a secondary role.
4. This is a chart of an oil producer doing its best, within technical and geological limits, to maximise its profit.
Regardless of which we choose among these possibilities (or others), it’s clear that Saudi Arabia has been a very different kind of oil producer than Russia, in the past 10 years. I would encourage readers to think about, in particular, the period starting in late 2005 through late 2007 when against a backdrop of steadily increasing prices Saudi Arabia production fell by nearly a million barrels per day. Per the interview mentioned above, with the Keiser Report, we might also want to consider the decision to develop fields such as Khurais. | see: Khurais Update: Got Seawater?
Based on the totality of information over the past 10 years, I think one can get much closer to reality in Saudi Arabia’s production profile than many presume, given the country’s secrecy. I would also remark that the untested assumption that Saudi Arabia has ~3-to-4 mbpd spare production capacity is one of those slippery and large concepts that can easily lose its shape, in the wrong hands. What do you think?
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