OPEC total production was down this month, according to this Bloomberg article by Karyn Peterson and Mark Shenk, but it seems that the efforts by other OPEC members to make up for Libya have yet to kick into full gear.
Saudi Arabia in particular is doing two things to address the decline in production ability due to the situation in Libya:
–Created two light low-sulfur blends “that are closer to the specifications of oil normally supplied by Libya”
–Ramping up production of its 3.5 million barrels of spare daily production capacity
This new super light blend that the Saudis have produced has not yet hit the market, or is not yet wanted by some refineries in Europe. However, when European refiners finish their maintenance season, utilization rates change and stocks dwindle, Europe may warm up to the new blend, according to a source citied by Reza Amanat in the Wall Street Journal.
That, or the fighting in Libya could cease and production could resume to normal levels. Demand will rise almost everywhere for petroleum in the coming decade, especially from surging China, so Saudi Arabia would have no trouble moving this new blend of ultra-light sulfur to other areas of the globe.
Above all the huge changes in the industry thus far in 2011, it seems that everyone is interested in a stable oil price, which is more predictable and favorable to consistent economic growth from both producing and consuming states. Different economists have varying predictions about what price of oil is most suitable for economic growth in a given state, depending on whether each one is primarily a producer, consumer or both, but a stable price allows for the confidence through certainty. And if the price goes too high, consuming states will be pinched in the short term, and in turn determined to wean off oil imports in the medium to long term – a situation the producer of anything would not want.
To be fair, the Saudis have made clear what they believe is a “comfort zone” on their end for oil prices at $70-$90. However, short of triggering a massive change in demand habits by consuming states, oil producers would, of course, benefit from a higher oil price, especially when they are embarking on major infrastructure and social spending packages to transform their economies.
So what is Saudi Arabia doing with some of this newfound windfall? Giving it back. A recently announced set of Royal Decrees,called here the “Saudi stimulus,”amounts to a massive redistribution of the Kingdom’s vast wealth to its citizens. In that stimulus are carrots for Saudi Arabia’s lower and middle class in the form of houses, cash and jobs.
If all stays the same, and it never does, Saudis new blends and greater production in the coming months should cover for Libyan shortfalls and increased demands to fuel the global economic recovery, assuming the situation in Libya remains unresolved.