OPEC Math Misses the Point  

Posted by Big Gav in ,

Julian Lee at Bloomberg has alook at Saudi oil production strategy in light of "peak oil demand" - OPEC Math Misses the Point.

The roots of this trace back to Nov. 2014, when the Kingdom refused to cut its output to support prices and subsidize high-cost rivals, rejecting the role of the world's swing producer.

This change of heart was inspired in part by the surge in U.S. shale oil production -- which was rising by 1 million barrels per day each year at the time -- in part by the growth in Iraqi output and in part by a re-evaluation of the long-term future of oil.

Saudi concerns over peak oil demand have changed its calculation of the long-term value of reserves in the ground. For most of the last 50 years they were seen as appreciating assets, whose value could only rise in the face of future scarcity. More recently a fear has surfaced that they could be wasting assets, falling in value as oil demand peaks and then wanes, while competing supplies vie for a dwindling market.

As I wrote in May, Saudi Arabia has finally heeded the warning issued in 2000 by former oil minister Sheikh Zaki Yamani, that the Stone Age did not end because of a lack of stones, and the oil age will not end for a lack of oil.

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