Forget OPEC: Russia Is Key

Posted by Jeff Rubin on June 8th, 2011 under SmallerWorld • 11 Comments

However the cold war being fought between Saudi Arabia and Iran plays out at this week’s OPEC meetings, oil consumers shouldn’t take any subsequent pledges of increased cartel production too seriously.

Other than a gratuitous gesture to their concerns, any announced OPEC production increase isn’t going to pump more gasoline into U.S. gas tanks or, for that matter, the tanks of motorists anywhere in the OECD.

OPEC production remains well below its level prior to the Libyan civil war, and what ever modest increase its kingpin producer, Saudi Arabia, can muster will be more than consumed by that country’s own soaring demand for power from air conditioners  in the approaching peak power summer season.

The only thing OECD oil consumers can count on growing in Saudi Arabia and the rest of OPEC is the cartel’s insatiable thirst for its own oil. With the price of gasoline less than bottled water, Saudi Arabia  already burns three million barrels a day with  demand claiming a third of its total oil production.

Khalid al Falih, chief executive officer of state-owned Saudi Aramco recently   warned in April that at the country’s current rate of growth in domestic oil consumption, Saudi Arabia would burn a staggering 8.3 million barrels a day of its own oil  by 2028. That is almost  its current level of production.

Ridiculously cheap gasoline and even cheaper diesel-fuelled electric power are one of the key tangible benefits the Saudi population, outside, of course the extended royal family, get to benefit from the country’s massive oil wealth. In a period of  unprecedented and growing  social unrest in the region, those oil subsidies  are unlikely to be withdrawn any time soon.

Russia, the one country actually able of producing 10 million barrels a day, isn’t even at the table at the OPEC meeting. And it’s been Russia that has been adding the most to world exports over the better part of the last decade as OPEC exports have faltered.

Oil production in Russia, the world’s largest producer, rose to a near post-Soviet high of 10.26 million barrels a day in May. Unlike Saudi Arabia, which has been hard pressed to maintain even a nine million barrel a day production level, Russian production has been north of ten million barrels a day since September 2009.

Prime Minister Vladimir Putin has made it a national priority to maintain Russian oil production at over ten million barrels a day for the next decade. Let’s hope Russian oil giants like OAO Rosneft  are up to the task.

Because if Russia can’t produce any more oil, don’t expect OPEC to do it.





  • Michael

    Putin notwithstanding, is there any reasonable estimate as to how long Russia can sustain 10Mbpd? Also, don’t the Russian’s enjoy a state subsidy on petro products, if so wouldn’t that increase domestic demand?

  • jerry

    Hello Jeff,

                I am in the Oil patch and I think you need to see the recent Speech by the Saudi Minister of Oil in Washington DC last month  indicating a major change …taking Saudir Aramco from a Regional palyer into a World Class Multi National i.e. Shell, Exxon. As well there are many important  articles ( almost identical to your themes in this months edtion of World OIl ) which are very Important in terms of Peak Oil and the impending issue relating to the competition for Oil . Most importantly please read Wildcatter , the life story of Michel Halbouty ( again the eseence of waht he said in the 1970 period is very simialr to what  you are saying now. Halbouty won all the AAPG awards and many more and was seen as the Golden Boy of Oil from 1930–1980. The point he made was we cannot rely upon Middle East Oil because we then become dependent upon there Oil versus our own Oil in North America which we need to explore more  and use wisely . I have many Oil books I could  loan to you for your research which are excellent in terms of Historical perspective. keep up the good work . Your second book will be jsut as good. best, jerry

  • JB

    Interesting analysis Jeff.

    But if OPEC or Russian cannot come up with at least another million barrels of oil per day (the Libyan hole), how long can 1 million barrels a day be drawn from oil inventories to prevent oil prices from spiking again?


    P.S: Of course there is always another way to balance the equation, i.e. through demand destruction i.e. a double dip of the Occidental World economy or some “disaster” reducing oil demand somehwere…

  • Faithfulreader100

    I agree we need to use less fuel

  • Jean

    I read your blog every week Jeff.  Very interesting. I have a question: If Saudi Arabia sees there is an oversupply of oil in Cushing and that there is enough oil in the U.S. to meet demand, wouldn’t they be inclined to diverge some of their exports from the U.S. to non-U.S. destinations (e.g. Asia)?

  • Luís Lavoura

    I wonder, why does Saudi Arabia produce eletricity from diesel?

    I mean, I think Saudi Arabia has plenty of natural gas, and I think it is more efficient to produce eletricity from gas than from diesel.

    I read Saudi Aramco had great ambitions to increase the kingdom’s natural gas production, aren’t these plans working out?

  • Jean

    A lot of observers are talking about peak oil and it’s potentially devastating impact on the economy if renewable sources of energy don’t arrive quickly enough as a substitute.  But in my view, what matter most, is when global demand will surpass global supply and I think we are getting really close to that point (maybe are we already there in 2011!).  Global supply might still increase for a number of years to come, but if demand increases more quickly, the economic consequences will be the same as reaching peak oil….i.e. higher oil prices driving a global economic slowdown. Just for 2011, global demand is expected to increase by 1.3 mb/day and on top of that there is approx. 3.0 mb/day of global depletion, so an additional 4.3 mb/day of new capacity needs to come in production in 2011.  Will OPEC and Russia be able to fill that gap?

  • Newsie

    will the spread between Brent and WTI stay at these levels?  Does the US not import some oil from places other than Canada?  Anyone?

  • Jean

    The US imports approx. 50% of its consumption from approximately 10 countries including Canada as the #1.  The problem is that most of the oil makes its way to Cushing where there is no easy way to send it to international markets.  Interestingly, there is at least one pipeline going from the Gulf coast to Cushing that could be reversed but it does not seem to be in the interest of the major stakeholders at the moment….maybe state legislation will be enacted to bring back WTI at the international level.

  • unc

    Jeff,could not agree more with your thinking. But I am certainly interested in your opinion on natural gas and how it will in the future fit in to the energy demand and cycle-s.Looking forward to your perspective on this change of available natural gas or compressed nat gas, with respect to the price of oil on the world market ,up and coming. Unc.F.S.J. B.C. CANADA.

  • Markmotive

    Peak oil has created a new boom-bust cycle. Problem is we’re still calling it a financial crisis