Two weeks after baobab 2050 raised the alarm about Saudi Arabia failing to replace the lost Libyan output, the Financial Times finally “broke the news” in an article titled Shockwaves from Saudi’s crude statistics. In the words of the Saudi Oil Minister Al-Naimi:

“Our production in February was 9,125,100 barrels per day,” Mr Naimi said. “In March, it was 8,292,100 b/d. It will probably go a little higher in April. The reason I mention these numbers is to show you the market is oversupplied,” he said in Kuwait City ahead of an industry conference.

The Financial Times went on with its assessment that the figures show that Saudi Arabia did not replace the loss of Libyan oil:

The International Energy Agency, the western countries’ oil watchdog, estimated Saudi Arabia oil production at 8.9m b/d in March. Now, the Paris-based agency will have to revise its figures down and show that Riyadh, at least in March, did not replace the loss of Libyan oil. Opec total production could have dropped then to just 28.6m b/d, a huge decline from more than 30.1m b/d in January and the lowest level since April 2009. The IEA estimates that Opec needed to supply an average of 29.5m b/d during the first quarter to balance the market and avoid a drop in inventories.

The rest of the FT article blames either demand destruction in Japan for the drop, or a Saudi “voluntary tightening”, without going into why they might have decided to tighten.

The FT article avoids a very thorny subject. This is the fact that as the Libyan crisis broke, Saudi officials publicly and privately pledged to replace the lost Libyan output – presumably in an effort to prevent panic in the oil markets. Perhaps they are avoiding this because the latest statements by the Saudi Oil Minister are completely at odds with both official pronouncements from Feb 24th that Saudi and OPEC were “both willing and able” to replace lost Libyan output, and with a Reuters story – attributed to confidential inside sources from Aramco, the Saudi oil company – dating from March 29th, which was originally titled “Saudi sells new crude to Europe amid Libyan outage”.

Here is the shocker: within 24 hours, this Reuters story “Saudi sells new crude to Europe amid Libyan outage” mysteriously disappeared from its original Reuters page. The Google search trail, via a cached comments page to the original article, proves that this discarded story subsequently morphed into and was repackaged as a different rose-tinted Reuters story, breathlessly emphasizing the millions of barrels of so-called Saudi spare capacity under the different title “Saudi scrambles to maintain spare oil capacity”. Thankfully all this cloak and dagger chicanery by Reuters was not completed before the original Reuters text was reposted elsewhere for posterity. Quoting from the hastily-withdrawn Reuters story dated March 29th:

Saudi Arabia’s output has risen to around 9 million bpd, roughly 1 million bpd above its OPEC output target, but traders voiced doubt that Saudi’s mostly high sulphur, or sour, crude would be an adequate substitute for Libyan easy-to-refine, light, sweet oil.

The Aramco source said the state oil company had developed a special new blend.

There is more in that story but that was the gist of it. Basically traders doubting whether Aramco could properly replace lost Libyan output, and no mention of the vaunted spare capacity of the almighty Saudi Arabia. Which may be why, in the context of a world panicking about oil supplies amidst the widening Arab Unrest, this decidedly pessimistic article was pulled by Reuters and hastily replaced at 2:03am New York time with a much more optimistic take on the whole situation. If all this means that the original article was far too unguarded, candid and honest for our own good, one can assume that the 9mbpd production claimed by the since-redacted Reuters article may also have been founded in truth. But the Saudi oil minister himself has now just said that the actual figure was 8,292,1000 bpd. So what is going on??

The overall picture, riddled as it is with inconsistencies, mysteries, 2am reversals, interference with journalistic work and surprises, simply reeks of a bunch of liars who just can’t keep their story straight.

For me, there is a more down to earth explanation of why the Saudis had to admit to “cutting back” than the FT’s speculations that the cutback represented either a voluntary tightening due to oversupply or a Japan effect (Japan did cut back on crude imports due to refinery outages caused by the March 11th disaster, but compensated by importing increased volumes of finished products)

I surmise that Saudi Arabia and OPEC, responding to constantly growing Asian and domestic-internal demand, had been producing oil flat-out for some time. These sources of relentlessly growing demand must have depleted internal buffer reserves faster than usual, forcing a big catch-up adjustment which can no longer be postponed: As John S. Callahan of had pointed out, every year as summertime approaches in Saudi Arabia the Saudis need to build oil stocks to run their peak-power plants that supply the airconditioners for 22 million people. See the charts below courtesy of

So the simplest explanation that reconciles all these inconsistencies could well be that the Saudis have slashed mostly exports and less so production, that they are stockpiling some oil, and that they are labelling the big cut in exports (that the rest of the world can observe anyway) as a drop in production caused by allegedly oversupplied markets. Some of that stockpile will be used for domestic consumption, and some might be released suddenly onto the world market in coming weeks or months, doubtless accompanied by fanfare about the “Saudis finally opening the spigots”, offered up as “proof” that the spare capacity was really there all along, honest to Allah it was, trust us…. brothers…. something tells me that Reuters won’t be deleting THAT story when it breaks.

And so the reckless (mis)management of a world economy addicted to dwindling supplies of crude oil continues.