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139 comments on Will OPEC increase supply in the 2nd half of 2007? Or has Ghawar peaked?
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Equally well the answer could be YES.
I, like quite a few others, believe SA locked in surge production capacity to produce maybe 2-3Mbpd of extra production, but only for a short period. Averaged over reasonable periods the trend can still be down, but with the occasional political induced 'spike'.
Its worth SA's while to create a short term constricted supply (say over $100 a barrel) to induce efficiency activities and reduce ongoing demand - then to ride to the news rescue with a surge of production. Not only do they get to be the good guys, they get to push the world demand economy towards behaviours they might have more chance meeting.
In fact, such a scenario is more likely than turning on the taps ahead of time, if we are close to a peak date.
It's worth remembering that (spare) pumping capacity reflects the amount that can be brought online within 30 days and that can be sustained for at least 90 days.
It's easy to prove the peak has not happened yet (either in KSA or the World) by having at least six consecutive months at or above levels previously established (and simultaneously proving you have the capacity to be the swing player in the oil market). For the KSA, that's 9.6 MMBPD. Globally, that's 74.2 MMBPD (C+C) from May 2005.
The "markets," quite frankly don't believe the situation will improve, as they have been in an extended contango. That may give partial explanation as to why crude oil stocks have continued to increase in the OECD.
But in terms of "days supplied in stock " the difference between the 5-year "low" (and the contemporaneous usage rate) and the current value is less than 14 hours (13.15 currently days versus 12.58 days at the "low" using C+C as the basis).
uh..... by who's definition does "spare" capacity equal production that can be brought on line within 30 days and that can be sustained for 90 days ?
I'll dig for the link but it was EIA that defined this.
http://www.eia.doe.gov/emeu/steo/pub/3atab.html
In the footnotes its defined in several places.
So KSA may not be lying about spare capacity its just not what a lot of people think it is.