On July 13, Biden plans to visit Saudi Arabia at local time and meet with King Salman and Crown Prince Mohammed of Saudi Arabia. This is his first overseas visit to Saudi Arabia since taking office.
"This has nothing to do with oil", this is what US President Biden said when he is about to start his Middle East trip. But U.S. National Security Adviser Sullivan said that when U.S. President Biden meets with Middle Eastern leaders in Saudi Arabia this week, he will ask OPEC countries to increase oil production to lower gasoline prices to make up for the sanctions on Russian oil. The rising trend in oil prices.
Saudi Arabia, as the first stop on Biden’s Middle East tour, has received a lot of attention. Saudi Arabia has always been cautious about increasing oil and gas production. Because of this, the attitude between the United States and Saudi Arabia has become very delicate.
Since the beginning of the Russia-Ukraine conflict and international oil prices skyrocketed, the United States has repeatedly called on Saudi Arabia and other oil-producing countries to increase oil production. At that time, Saudi Arabia was very tough and stated that it would not increase oil production. He said he would separate oil from politics and would not interfere with oil price fluctuations caused by geopolitical conflicts.
After that, the United States repeatedly appealed to no avail. In May, the United States issued news saying that Saudi Arabia and Russia were the "culprits" in provoking the rise in international crude oil prices.
In the face of increasingly tense international energy, in mid-May, Saudi Arabia's Energy Minister Abdulaziz stated that Saudi Arabia does not have the refining capacity equivalent to the current demand. If Saudi Arabia switches to using local natural gas and renewable energy for energy production, it could free up 1 million barrels per day of petroleum fuel for export. However, increasing production capacity is limited and will do little to make up for the energy gap caused by sanctions on Russian oil.
Today, as the energy crisis continues to plague Western countries, the United States has to visit Saudi Arabia, which has a delicate relationship, to seek increased oil production in Middle Eastern countries.
The mystery of production capacity
How much oil production capacity Saudi Arabia can increase has always been unknown.
As we all know, Saudi Arabia is the world’s largest oil exporter. Historically, Saudi Arabia's production capacity has been able to increase to a maximum of 12 million barrels per day.
Most institutions indicate that Saudi Arabia is fully capable of increasing production . Reuters 's John Camp noted in an analysis on the topic that Saudi Arabia has only reached production levels of 12 million barrels per day once, in April 2020.
The International Energy Agency (IEA) believes that Saudi Arabia is fully capable of increasing production. According to its published data, Saudi Arabia’s short-term order production capacity is 1.2 million barrels per day, which can be increased to current production in less than 90 days. The International Energy Agency estimates that longer-term spare capacity is 2.1 million barrels per day. The International Energy Agency estimates Saudi Arabia's sustainable production capacity at 12.2 million barrels per day.
In addition, some Saudi Arabian officials said that Saudi Arabia’s oil production will reach 11 million barrels per day in August this year.
All the fingers are pointed at Saudi Arabia. It is clear that it can easily reach the level of 12 million barrels per day, but it ignores the fluctuating international oil prices and repeatedly refuses to increase production capacity.
However, according to the data circulated, the 12 million barrels per day data is a bit difficult for Saudi Arabia.
First, Saudi Arabia only briefly achieved a production capacity of 12 million barrels per day in April 2020. However, Saudi Arabia's crude oil production is currently approaching its peak, and it is still unknown whether it can maintain high production capacity for a long time.
Since 1940, Saudi Arabia’s production peak occurred in 2016, with the annual average production being 10.6 million barrels per day. Referring to the latest monthly report of OPEC, Saudi Arabia's crude oil production in June was 10.585 million barrels per day, and Saudi Arabia's current production is close to its historical peak.
In addition, Saudi Arabian Oil Company recently stated that html it will reduce its oil supply to China in 17 and instead sell the oil to Europe at a higher price. This means that Saudi Arabia’s short-term production capacity is limited and there is the possibility of a substantial increase in production. Not big.
Second, the production capacity of 12 million barrels per day is only speculation from the outside world and does not take into account the actual oil production situation of Saudi Arabia.
Crude oil stocks continue to decline. The main supply of Saudi crude oil comes from Saudi Aramco, and Saudi Aramco's crude oil production will drop significantly from 2020 to 2021. In addition, Saudi Aramco's main production oil fields ( proven reserves are more than 5 billion barrels), due to the long production time, most oil fields have passed the production explosion stage and entered the production decline period .
In addition, Saudi Arabia has always been affected by geopolitical conflicts, and its energy resources are often threatened. Yemeni armed forces have always been a serious concern for Saudi Arabia. In March this year, a large number of oil facilities in Saudi Arabia were destroyed due to attacks by the organization, which was a major obstacle to increasing oil production.
Saudi Arabia is not very willing to increase production capacity, and no one knows how much it can increase.
The problem of increasing production
Regardless of its actual production capacity, the bigger question is whether Saudi Arabia is willing to use idle production capacity.
The relationship between the three major oil countries, Saudi Arabia, Russia, and the United States, is always in a state of flux. Previously, Saudi Arabian officials have said that Saudi Arabia is committed to making oil decisions through the OPEC+ organization, which includes oil-producing countries including Russia.
The relationship between the United States and Saudi Arabia was also at a low point due to disagreements over production increase. An obvious manifestation was that in May this year, Saudi Arabia refused to answer a call from the United States Biden.
In addition to differences over production increases, Saudi Arabia has also promulgated some policies regarding oil export restrictions. In March 2018, Saudi Arabia's King Khalid and other royal family members have made the decision to limit Saudi Arabia's oil production for a long time, ranging from ten to twenty years .
Whether it is to restart old wells that have been shut down or to drill new wells in production oil fields, it is difficult to make a decision for Saudi Arabia, which has decided to limit production.
If Saudi Arabia rashly increases production, it is very likely to destroy its own oil reservoirs. Saudi Aramco revealed last year that it plans to increase daily production to 13 million barrels. The company's chief executive, Amin Nasser, said the expansion will last until 2027. In other words, it would take 8 years to increase the maximum sustained oil production capacity by 1 million barrels per day.
If the idle capacity in oil production is used for a short period of time, there will be no impact; but if it is used for a long time, it will lead to a reduction in spare capacity, and when an actual emergency occurs, it will fall into a passive state.
Whether it is the relationship between the United States and Saudi Arabia or the relationship between Russia and Saudi Arabia, they are all determined by objective interests. If Biden, who is visiting Saudi Arabia for the first time, wants to take US-Saudi relations to a new level, it is important to find a balance point for win-win cooperation. The existence of the equilibrium point is still unknown, and international oil prices have already fallen first. As of press time, WTI crude oil futures fell by 2.7%.
Source: Energy Circle
