With prices spiking and riots erupting, the Saudis say: Don't worry, be happy.
The three biggest lies current in the world today: 1) “The check is in the mail” (still a favorite, after all these years). 2) “Lower taxes for the rich means more jobs for the poor” (well into its fourth decade as a popular inversion of reality). And 3), the newest and in some ways the biggest; “Don’t worry, Saudi Arabia will increase oil production to keep prices from going too high, OR to compensate for the loss of Libya’s/Iraq’s/Egypt’s production, OR to reassure the re-election of American politicians if their name is Bush, OR whatever.”
It’s easy to understand why the Saudis do it. If the ordinary people who work in the oil fields and the palaces of Saudi Arabia ever understand what is about to happen to them — that their jobs and security are about to start evaporating, with no hope of recovery — especially in this Arab Spring of rebellion against wealthy tyrants, then a lot of Saudi princes and hangers-on will shortly lose their jobs, if not their heads.
What is not so easy to comprehend is why the industrial world accepts the increasingly desperate lies of the Saudis about their ability to meet world oil demand, as they sound more and more like tales from the Arabian Nights. Perhaps it’s for the same reason a person dying of cancer will blow his life savings on treatments with gamma rays from the planet Boron focussed by an aluminum-foil hat. He doesn’t like what the real doctors are telling him, he’s going to go with the optimistic hack.
What the real oil doctors — the ones who are not being paid by Big Oil to comfort us — tell us about Saudi oil production is, first and foremost, that the Saudis have not since 2005 been able to sustain production of substantially more than 9 million barrels of oil per day, except for a brief period during the price spike of 2008. The Saudis say that’s because they haven’t felt like it. The real oil doctors say it’s because Saudi oil production has peaked, their fields are playing out, and they will never again be able to produce 9.5 million bbd.
To understand better how strained the Saudi story is becoming, and how far it is diverging from reality, let’s go back to February 25. The Arab Spring had just erupted in Libya, and that country’s contribution to the world’s oil gluttony had dropped precipitously by 1.3 million barrels per day. Oil prices were already flirting with the $100-per-barrel mark not seen since 2008, when Wall Street financiers set fire to the world’s economy. With oil demand rising sharply in China and India, and the US limping back from its economic coma, there were fears that higher oil prices could bring back deep recession. So it was that every newspaper and every broadcast news source intoned the comforting mantra, of which this Reuters dispatch was an example:
DUBAI, Feb 25 (Reuters) – Saudi Arabia has increased its oil production to more than 9 million bpd to compensate for disruption to Libyan output, an industry source familiar with the kingdom’s production told Reuters on Friday.
Note that this is not an official statement from the Saudi government nor from Aramco, but an anonymous leak from an “industry source.” Of course it came from the government, but it seems reasonable to conclude that while the Saudis wanted to be seen as the benefactors of a troubled world, they did not want to go on the record with their bland assurance that, in the words of this source, “We have a lot of production capacity.”
Now that the numbers are in (as much as they are ever in, given the crazed secrecy of oil exporting countries about their reserves and capabilities) we know that if the Saudis had any good intentions, they did not realize them.
They did indeed manage slightly more than 9 million bpd in February. But that had already been accomplished before Libya erupted, obviously in response to the already-rising prices. In March, however, with prices even higher and Libya’s production off the cliff, Saudi production fell by a million bpd! Where were the good intentions? Where was the compensation for Libya? Where was the production capacity? Answer to all the above questions: Gone.
On April 18 the Saudi oil minister Ali al-Naimi made a statement on the record to account for this stunning reversal. Saudi Arabia had decided to reduce production, he said, because “the market is oversupplied.” This was quite a surprise to a world beset by dangerously rising prices for fuel and — not coincidentally — food. The statement was as breathtakingly illogical, and as complete a denial of reality, as Donald Trump discussing birth certificates. And of course it was reported with the same deference and presumption of sanity.
What does not get reported is the fact that Saudi Arabia, like the rest of the world, cannot increase oil production because less than half of what we started with remains, and every drop from now on will be harder to get and more expensive to use than the drop that came before.
