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Why the Saudis are lying about oil production

Saudi Arabia's comments on the hydrocarbon industry have long been considered as credible as China's comments on its economic growth: that is, not at all. Saudi Arabia's ability to lie is definitely improving, even though the completely transparent lies pertain to the level of oil reserves, spare capacity, and why the Omnitoxic Aramco should still be valued at $ 2 trillion.

Its latest lies – along the lines of "everything is good after the attacks, and we will return to full production very quickly" – are relatively nuanced. "The Saudi statements may not contain any direct falsehoods as such, but they are also not entirely true," Richard Mallinson, senior energy analyst for Energy Aspects, told LondonPublic OilPrice.com last week.

The scene was set for the Saudis' latest false-active extravaganza with the air strikes at Abqaiq's massive oil processing plant and Khurais oil field, according to various sources, released by Houthi & # 39; insurgents & # 39; in Yemen or by Iranian operators in Yemen or in Iran. The effect of the total attack on Abqaiq and Khurais caused the temporary suspension of 5.7 million barrels per day (bpd). This corresponds to well over half of Saudi Arabia's actual crude oil production capacity, not the capacity Saudi has picked out of nothing for geopolitical power in recent years, and resulted in the largest oil price increase in a single day ever. [1

9659002] Once, the hedge funds, which had conveniently positioned themselves a few days before the attacks, had made a profit, and younger traders remembered that the United States could release huge amounts of oil by dropping a hat from its Strategic Petroleum Reserve to keep the price of oil – And crucially ahead of an election year, the highly correlated and politically hugely sensitive gasoline price in the US – oil prices fell again, obviously.

A lot of interesting things happened from Saudi Arabia since prices went up and then went down again. The first of these, as OilPrice.com was repeatedly informed by senior oil traders throughout the day, was the lack of real understanding that senior Saudi officials appear to have on how the oil market works or some details about Saudi's own oil industry. [19659002] "I thought the Saudis thought all of us [oil traders] were idiots, with all the garbage they used to come out with and thought we should believe, but lately it has occurred to me that they really don't know anything about the oil industry, so they do not understand that other people actually know what they are talking about, and this has also been one of the reasons for the constant delay in Aramco sales, by the way, ”a senior oil trader based in Asia told OilPrice.com. Related: Millennials Really Do Ruin Everything, And Big Oil Is Next

Aramco Sales to One Side for Another Time (although OilPrice.com has previously exclusively highlighted all the lies associated with There), a particularly striking comment came from Saudi Arabia's new oil minister, Prince Abdulaziz bin Salman, just after the attacks. He stated that the Kingdom plans to restore its production capacity to 11 million bd by the end of September and regain its full capacity of 12 million bd per two months later.

"It was extremely telling that he was talking about & # 39; capacity & # 39; and later" supply to the market, "as these are terms that Saudi tend to use to avoid talking about actual production, since capacity and supply are not the same as actual wellhead production, "said Energy Aspects & # 39; Mallinson." What Saudi is trying to do by not revealing its true image is to protect its reputation as a reliable oil supplier, especially to its target clientele. in Asia, so we have to take all these comments with a hefty pinch of salt, "he added.

So hefty a pinch of salt that it is mountainous in terms of capacity and available capacity. The country has stated in several a decade that has a vacant capacity of between 2.0-2.5 million bpd, which means – given actual production for almost all this time on average less than 10 million bdd – total production capacity of 12.0-12.5 million bd. This level, or r anywhere nearby has never been remotely tested, with the highest production ever recorded being just over 11 million bd as of November last year.

This despite the entire oil price war that Saudi started in 2014 against US shale producers to try to destroy the industry through low prices caused by flooding of the oil markets. "If the Saudis had something close to 12 million barrels per day capacity, it would be time to pump it, but all it managed was just under 10 [million bpd] with 10.5 [million bpd] that managed for just a month over that two-year period [2014-2016 before Saudi reversed it strategy] ”

In addition, EIA specifically defines available capacity as production that can be brought online within 30 days and maintained for at least 90 days, while even Saudi Arabia has said it will need at least 90 days to move rigs to drill new wells and increase production to the mythical 12 million bpd or 12.5 million bpd level. Many serious players in the oil market now do not believe that the Saudis have anywhere near 2 million bpd of available capacity, as that would mean a production of 12 million bpd plus. Instead, many now believe that the Saudis have a sustainable spare capacity of no more than around 0.5-1.0 million bpd.

Regardless of Saudi's actual capacity, there is absolutely no way to make it an accurate estimate of how long it will take to get back to any particular capacity level either – another lie. Engineers we've talked to have said that after an event like this, it will take several weeks just to assess the damage, but please start doing something about it, rather than the few days the Saudis have taken and then announced the actual timeline – and a very short timeline on it – to bring back different stages of capacity, says Energy Aspects & # 39; Mallinson.

"Instead of the Saudis going to stop exports is to bring in supplies to the domestic industry and reduce the quantities it sends to domestic refineries – one large refinery, SASREF, provides practically the planned maintenance for later years so far – and we hear very mixed reports which of the other refineries are operating at regular prices, "he added." But some buyers are already being warned of delays, some are being offered barter with other grades and so on, "he emphasized. Related: US Shale Kept Oil Oil From Surging After Attacks On Saudi Oil

Particularly a number of customers in Saudi Arabian light and Arabic extra light grades – the characters most affected by recent attacks – have been offered to Saudi Arabian medium or Arabic tongue as replacement qualities Oliprice.com understands from oil trading sources, even up to Saudi Arabia's number one target nd, China A number of refiners have been told by Aramco that their rolling orders for Arabic extra light crude oil cannot be delivered provisionally, but can be exchanged for either Arabic medium or Arabic heavy, depending on the refinery's layout. Others who are looking for their regular monthly supply of Arab Light have been told that this will be switched to Arab Heavy as a replacement for the least possible September loading.

The second measure that Saudi is taking – which it has denied, but OilPrice. com can confirm from various oil trade sources and from sources in Iraq. Ministry of Petroleum – is looking to buy Iraqi oil grades, which are close to the most important export grades that Saudi Arabia sends to various destinations, including Asia. "Aramco Trading Company has been aggressively checking Iraqi crude oil prices and lot sizes [oil] since the attacks and appears to be short-term potentially rolling contracts," a source told OilPrice.com last week.

"A number of the Iraqi characters have specifications relative to their Saudi counterparts, and part of this activity by Saudi to fill customer supply quotas for these grades is to ensure that the demand we still look for such Iranian characters from Asia, but mainly China, is not strengthened to make up for Saudi Arabia's deficit, "a senior source working closely with Iraq's oil ministry told OilPrice.com.

Of course, the supreme irony – which OilPrice.com has repeatedly emphasized, and as many in the oil markets now know, although apparently not Saudi, is that a cornerstone strategy used by Iran to circumvent today's US sanctions against it (which was also the case in the previous period of sanctio ns) is to convert the oil into Iraqi oil, which is extremely easy to do, both at the massive and porous boundary between the two or via different pipeline and freight routes.

Saudi Arabia may increase the bank accounts of the people they believe were behind the attacks on its own oil infrastructure, the Islamic Revolutionary Guards Corps – a solid and active supporter of Yemen's houthis – through its various oil industry-associated businesses by purchasing Iranian oil, albeit with the stickers changed on the barrels.

By Simon Watkins for Oilprice.com

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