Oil prices rose past $104 a barrel on March 4, marking a two-and-a-half-year high and sending stocks sharply lower on Wall Street, as fighting in Libya and unrest in the Arab world intensified. As a result of the unrest, Libya’s production halved, forcing Saudi Arabia to hike output to make up for the resulting shortfall. Libya has Africa’s largest oil reserves and contributed about 2% of global production before the crisis broke out. The spread of unrest to Saudi Arabia, the world’s number one exporter, helped further drive up prices. (AP, Proactive Investors, The Street, March 5)
The new oil spike comes weeks after WikiLeaks released diplomatic cables indicating that the US fears Saudi Arabia may not have enough reserves to prevent oil prices from escalating in the long term. The cables urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom’s crude reserves may have been overstated by as much as 300 billion barrels—nearly 40%.
Sadad al-Husseini, a geologist and former head of exploration at the Saudi monopoly Aramco, met the US consul general in Riyadh in November 2007 to say that the company’s estimated 12.5 million barrels-per-day capacity needed to keep a lid on global prices could not be reached. According to the cables, Husseini said Saudi Arabia might reach this output level in 10 years, but by then—possibly as early as 2012—global production will have hit its highest point, the dreaded “peak oil.”
Husseini said that at that point Saudi Arabia would not be able to stop the rise of global oil prices because Aramco had overstated its recoverable reserves to spur foreign investment. One cable said: “According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray.”
It went on:
In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.
Al-Husseini disagrees with this analysis, believing Aramco’s reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached…a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output.
The US consul then wrote Washington: “While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered.” Another cable reported major project delays and accidents as “evidence that the Saudi Aramco is having to run harder to stay in place—to replace the decline in existing production.” (The Guardian, Feb. 8)
Libya has been producing some 1.6 million bpd before this was halved by the crisis. Riyadh’s cabinet declared this week, “Saudi Arabia is committed to the stability of the [oil] market,” and to ensuring that global supplies remain available. Saudi production climbed to 9.38 million bpd in February from 9.08 million bpd in January and 8.62 million bpd in December. (Arab News, March 6) As during the market hyper-priapism of three years ago, this has failed to get prices down.
Oil market watchers are now waiting to see if the price per barrel breaks back through the $147 peak seen in July 2008. But anything above the $100-barrel mark can be expected to have harmful side-effects, including driving up global food prices. A survey of 34 analysts by Bloomberg earlier this year offered this sobering assessment: “Oil demand increasing at almost twice the pace of supply is spurring the most-accurate forecasters to predict the second-highest price on record in 2011. Sanford C Bernstein says crude will average $90 this year. Natixis Bleichroeder sees $100 a barrel, 26% higher than in 2010.” (QFinance, Jan. 12)
Last month saw repeated angry protests and strikes in Bolivia—over both rising fuel prices and rising food prices. In 2008, when prices were hitting their all-time peak, many predicted $200 a barrel by year’s end. The fact that prices instead fell again, and are now once more rising in response to the Middle East crisis, vindicates our assertion that prices are not yet determined by scarcity but by politics. The fear of scarcity is a part of the political equation—but this is also exploited by the industry to fuel its own growth. The absolutely necessary prerequisite for avoiding global disaster—whether due to industrial collapse brought on by oil scarcity, or ecological collapse brought on by oil profligacy—is extending public control over global hydrocarbons and dismantling the system of petro-oligarchical rule.