Interesting new events are starting to impact the global crude balance — rather positively — this time. Markets are softening. A number of reasons could be attributed to this easing out. The lowering of geopolitical temperature in this major oil producing region, coupled with rising inventory levels in the OECD, are now impacting the global crude markets.
Another factor helping the crude markets at this stage is the apparent improvement in the supply side. Russian crude production now touching new heights is also reassuring and soothing the rather itchy crude markets.
Quoting OPEC, the prestigious British daily Financial Times reported in its issue of Aug. 23 that in the month of June, Russia on an average produced 9.236 million barrels of crude. This was 46,000 bpd higher than the Saudi production in the same month.
Traditionally, Saudi Arabia has been the No. 1 crude producer of the world for last many decades. In fact, it is an uncomfortable throne to occupy in many senses, for the position carries its own responsibilities too. It could be hazardous in many senses. Hence with Moscow forging ahead of Riyadh in this respect in June, many in the Kingdom could even welcome the change. Riyadh could no more be crucified alone - and at times for no sins of its own. No more could Riyadh be blamed for tampering with the markets, as has often been done in past. To be the world’s top gas station is not a comfortable business to be in with. Riyadh has been fulfilling this almost thankless job for long. Now that Russia is standing shoulder to shoulder with the Kingdom, as far as output is concerned, the responsibility also gets shared. Heaving a sigh of relief, Riyadh could now easily claim that the other heavyweights in the arena do also have a balancing act to make.
However, one thing differentiates Saudi Arabia with Russia and other producers. One of the major issues afflicting the current market balance is the lack of spare capacity. And in the current tight situation, if one country could boast of still having a spare cushion, it could be none other than the Kingdom. Hence, despite Russia registering highest crude output in recent months, Saudi Arabia remains the kingpin in the international crude arena and no one could deny it.
Furthermore, one also has to concede that the restricted Saudi output of around 9.19 million bpd during the month could also be attributed to the OPEC quota policy. Further, one also has to understand that Russian production is already close to seams and as per analysts, Moscow would only be able to register an output increment of about two percent between now and 2009.
On the other hand, Saudi Arabia and other producers in the region present a very different and indeed promising picture. Energy wizard, the former OPEC assistant secretary-general, who also remained Iraq’s deputy oil minister in seventies and is now associated with the London-based Center for Global Energy Studies, as its Executive Director Dr. Fadhil Chalabi, also seconds this opinion.
While in London, it is not easy for someone associated with the energy world to pass by the CGES and not enter there. From an energy point of view it could easily be termed as a pilgrimage. Formed by none else than former Saudi Oil Minister Sheikh Ahmed Zaki Yamani, the center could now easily boast of as a leading authority on the economics and politics of energy.
During an informal chat at the very impressive offices of the CGES in the Knightsbridge area in the heart of London, Chalabi spoke at length on the emerging scenario(s) in the energy world.
Saudi Arabia and Iraq are underexplored in many ways, Chalabi asserted. In case of proper investments in technology and additional drilling, the prospects of Saudi Arabia boosting its reserves considerably is very bright, he commented. “Naimi is correct when he says Saudi Arabia is poised to add another 200 billion barrels to its reserves soon,” Chalabi, who was even referred to as a possible czar of the Iraqi energy industry after the fall of Saddam in 2003, told this correspondent with a sense of authority.
Commenting on the notion of an imminent “end of oil era”, being discussed in some circles today, Chalabi felt it was more of wishful thinking. A lot would depend on new exploration and new wells, market prices and the use of newer drilling technology currently available. Higher oil prices could hasten this process, he warned, yet with the available technology, there did not seem to be any dearth of resources at least at this stage, he asserted. The oil era is not going to end at least for another 30-40 years, he opined and its ultimate demise could ultimately be caused by an upheaval, as happened with coal as the source of energy.
That was indeed reassuring in many ways, especially since it came from a pundit who has been a witness to a number of upheavals in the industry that he has been associated now for almost half a century in one capacity or the other.
