Will the US stop depending on Saudi oil?
By Dr Fahad bin JumahALRIYADH – Some believe the United States will stop depending on Saudi oil, or at least lower its imports dramatically, because of its growing production of domestic oil in the US, and its increased oil production of 8.45 million barrels a day. The Americans have said they expect their oil exports to reach 7.3 million. Some US refineries process more than 15.7 crude oil per day (similar to Saudi oil), with an operational capacity of 88.5 percent, while its commercial stock reaches 388.1 million barrels and strategic stock reaches 691 million.
Saudi Arabia is OPEC’s biggest oil exporter to the US. Canada comes in a close second with exports of 3.2 million barrels a day. The average Saudi oil exports topped 1.494 million barrels a day during the first four months of 2014. In April its exports reached 1.61 million barrels a day. Venezuela came second with 753,000 barrels a day and Mexico exported 924,000 barrels during the same period.
Saudi Arabia’s commitment to supplying the international oil market and meeting increased demand, makes it a reliable source for oil-consuming countries, especially during crisis. It has a flexible productive capacity that reaches 12.5 million barrels a day. Saudi Arabia produces around 9.8 million barrels a day to maintain stable oil prices in light of the current geopolitical events.
I disagree with the Wall Street Journal’s article on June 23, which doubted the Kingdom’s ability to increase its production by more than half its surplus capacity of 1.3 million barrels a day. The journal claims Gulf officials have previously said the Kingdom can’t maintain the same productive capacity.
It seems that the WSJ needs to review its economic theories and understand the behavior of Saudi production. Saudi Arabia follows a policy of maintaining stability in supply and demand and keep prices acceptable for both producers and consumers at around $100 a barrel. When Saudi increased its production to 10 million barrels a day the idea wasn’t to boost production to full capacity but stabilize the market. If Saudi Arabia produced 11 million barrels a day, this would decrease prices which would in turn will harm producers and contradict its stable policy and discourage investments to discover more oil fields.
It is not in Saudi Arabia’s interest to produce more oil than is needed in order to close the gap between supply and demand within OPEC’s production ceiling which is 30 million barrels a day. International demand decreases with rising prices and creates stability with the increased supplied oil from Saudi Arabia according to the market’s factors which define the price.
In February 2002 the price of oil reached $103.05, and continued to increase until it reached its highest price of $147.02 on July 11, 2008. Then decreased again to $100 at the end of summer that year. There was no shortage of supply then, but geopolitical factors and fears of stopping supply led to spiraling prices.
Saudi Arabia has the biggest productive oil capacity in the world, it will always be a reliable barometer for the stability of global oil markets.
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