Saudi Arabia is pumping out more crude that at any time since the 1970s and in Kuwait and The UAE, oil production levels have hit record highs. As The FT reports, the US might be 'drowning' in oil, but the world is still dependent on Saudi Arabia for the marginal barrel. This is crucial since, "whatever is happening in the US, the Gulf states remain critical to the global oil trade,” says Credit Suisse's Jan Stuart, "the fact they are producing so much shows that the global oil balance is far more stretched than consensus would have you believe." The trigger for the jump in Gulf production has been huge disruption to supplies from Libya; and with the three large Gulf producers meeting 17.1% of global demand (it has never topped 18%), the dependence on the Gulf appears to be growing. The concern remains, despite apparent nonchalance, that consuming nations like the US, China, and India will be stifled should production disruptions last.
The US might be drowning in oil, but the world is still dependent on Saudi Arabia.
Indeed, Saudi Arabia is pumping out more crude than at any time since at least the 1970s. In neighbouring Kuwait and the United Arab Emirates meanwhile, oil production levels hit record highs.
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These numbers reflect a profound but easily overlooked trend in the global oil market. In spite of the shale oil revolution in the US, the world has become, if anything, more dependent on a handful of Gulf producers to fill supply shortfalls elsewhere.
“Whatever is happening in the US, the Gulf states remain critical to the global oil trade,” says Jan Stuart, head of energy commodities research at Credit Suisse.“The fact they are producing so much shows that the global oil balance is far more stretched than consensus would have you believe.”
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The UAE and Kuwait have also both set records for output this summer, at about 2.8 mb/d. In August the three large Gulf producers met 17.1 per cent of global demand. In thirty years of IEA data, their share has not topped 18 per cent.
This dependence on the Gulf appears to be growing.
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For consuming nations such as the US, the world’s largest crude importer, India and China, the question is whether these Gulf states have enough spare capacity to keep pumping at these levels– or even raise production should disruption last?
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The consequences for the global economy – and the world’s biggest oil consuming nations – are significant. Saudi Arabia is already the single largest supplier to many of the large importing countries, including China. But it only sells crude to existing customers, and does not allow buyers to sell on their cargoes.
For all the talk about the shale boom, then, it is business as usual for the rest of the world in terms of supply. The market will be watching those output data closely.