Saudi Arabia Churns Out More Oil, Fearing Demand Erosion

NEW YORK — Crude oil futures swung wildly on Monday, rising to a record and then tumbling as investors wrestled with whether they should put stock in Saudi Arabia's promise to boost production. Retail gas prices rose to a record $4.08 a gallon.

Light, sweet crude for July delivery fell 25 cents to settle at $134.61 a barrel on the New York Mercantile Exchange after earlier soaring to a trading record of $139.89. Earlier, they dropped as low as $132.84.

With little in the way of news to explain oil's turnabout, analysts pointed to Saudi Arabia's weekend decision to boost production and to Tuesday's expiration of crude options, which are agreements to buy or sell futures at higher or lower prices.

Trading is often volatile in the days immediately preceding options expiration. "That could be the cause of some of the volatility today," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.

Saudi Arabia, the world's largest oil producer, told U.N. chief Ban Ki-moon over the weekend that it would boost oil output by 200,000 barrels a day, or by 2 percent, from June to July. In May, the kingdom raised production by 300,000 barrels a day.

A sense that the Saudis may be getting serious about boosting output could be growing among some investors. Still, many analysts believe the boost in Saudi output is too little to make much difference.

"Saudi Arabia's proposed output addition will only go some way in offsetting the significant output losses in other OPEC nations like Nigeria," said Barclays Capital analyst Kevin Norrish in a research note.

Cordier said Saudi Arabia has "to increase by north of 1 million barrels per day" to have an impact on prices, "and the market doesn't think they have it."

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According to the International Energy Agency, OPEC spare capacity fell below 2 million barrels a day in May for the first time since 2006. The majority of that _ about 1.45 million barrels a day _ was in Saudi Arabia.

Earlier Monday, prices rose as the dollar fell against the euro. Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker dollar makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar's protracted decline is a major factor behind oil's doubling in price over the past year.

Investors were also mulling the effects of an overnight fire at a StatoilHydro ASA drilling rig in the North Sea, which could affect as much as 150,000 barrels of daily oil production, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn., in a research note.

At the pump, meanwhile, the national average price of a gallon of gas rose 0.3 cent overnight to its latest milestone, according to AAA and the Oil Price Information Service. Gas prices are following crude prices higher, and likely have several more cents to rise before catching up with oil's latest advance.

If oil prices pass $140 and head even higher, the pain consumers are feeling at the pump will intensify.

Diesel fuel prices held steady Monday at a record $4.797 a gallon. High prices for diesel, used to transport most of the world's food, are pushing food prices higher, putting even more pressure on consumers.

In other Nymex trading, July gasoline futures fell 2.47 cents to settle at $3.4379 a gallon, while July heating oil futures fell 0.94 cent to settle at $3.8274 a gallon.

July natural gas futures rose 30.8 cents to settle at $12.933 per 1,000 cubic feet.

Anadarko Petroleum Corp. said Monday that natural gas production from a project in the deep waters of the Gulf of Mexico has been restored, hitting a gross rate of about 900 million cubic feet per day. Output from the Independence Hub was halted April 8 after a pipeline leak was found.

In London, August Brent crude futures fell 40 cents to settle at $134.71 on the ICE Futures exchange.

___

AP Business Writer John Porretto, in Houston, and Associated Press writers George Jahn in Vienna, Austria, and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.

Comments

[leduck]

or think of it like a scale for bombs

there is the hydrogen bomb (1 mg or more) = oil
there is the atomic bomb (kiloton range) = natural gas and coal
dynamite = sugar cane ethanol
firecracker = corn ethanol

now try to figure out a way to make the firecracker explode like a hydrogen bom without using fusion or fission

did i dumb it down enough?

[leduck]

Let me see if I can explain this to you "DontBeFoolish"
maybe I can get some help from "killthemessenger," but he may not want to waste his time

there are many different forms of energy
Oil contains a lot of highly dense energy (highest EROIE)
natural gas and coal are next in line (high EROIE)

biofuels are not as energy dense -- corn ethanol is less dense then say sugar cane (low EROIE to break even)

what you needto learn about is EROIE

long ago back in the early days of the oil age
oil had an EROIE of about 100
now it is somewhere say around 30 or 40 (help me out "killthemessenger") i'm not sure
but corn ethanol is about 1 to 1 or at best 2 to 1
not that good at all even if it weren't break even

sugar cane is above break even
it's not the techology we need to be like brazil
we'd also need a lot fewer people, a lot fewer drivers and a different climate
we'd need to be tropical or sub-tropical

[DontBeFoolish]

OIL COUNTRIES ARE NOT NEEDED...... See what BRAZIL HAS DONE....... GOOGLE Brazil's alternative fuel.

[KillTheMessenger]

Brazil uses one sixth of the oil per capita as the US. You are comparing apples and oranges. Or lean, Brazilian Carnival beauties with fat heroin junkies, if you want.

[DontBeFoolish]

Dude, it's not the economies that I am talking about. It the ALTERNATIVE FUEL TECHNOLOGY. Who cares how much oil they use! They have technology that we can, and should be using.

[leduck]

brazil still pumps it's own oil
flexfuel
they rely on both oil and sugar cane

corn is not sugar cane

[DontBeFoolish]

Corn is a third alternative. If Brazil is using oil and sugar can, and their prices are lower, than why can't we. IT IS THE TECHNOLOGY THAT WE WANT. If the technology works, as it is now in Brazil, then we should use it. Let me pose it to you this way. Think of Brazil as a test subjuect, you put in the effort money, etc,etc. You find that all of your test WORK. Now, the theory is no long a theory. It is a proven fact that the technology you worked on creating, now works. Let's move it to a larger scale(U.S.A.). Does that open a few windows for you.

[DontBeFoolish]

OIL COUNTRIES ARE NOT NEEDED...... See what BRAZIL HAS DONE.......

[LivingStardust]

Yeah, it's out of fear alright.

Fear that their puppet Bush is not only being shown the door, but will likely face war crimes and treason trials.

Saudi Arabia DESERVES to be in a collective flop sweat. They brought it on themselves.

[KillTheMessenger]

And I am not sure what you are smoking. But it must be strong stuff, because the Saudis have a business models for many years to come. They are not breaking a sweat here. Only you are.

[LivingStardust]

Business model, eh? That's your defense of those who attacked us on 9/11?

Try again, fascist.

And I've got some smoke to exhale. You know where you can put it.

[padfoot]

Maybe if our peace loving diplomacy first president would stop threatening to nuke Iran speculators would stop driving the price up.

[DontBeFoolish]

SAUDI ARABIA OIL IS NOT NEEDED. Search on what Brazil HAS DONE with sugar cane. This technology is currently working in Brazil, and they could care less about wether Saudi Arabia pumps our more oil or not. Were all being wambozzled by our government.

[KillTheMessenger]

Don't be foolish, DontBeFoolish. Brazil is using way less oil per capita than the US. That is why they can make an impact on their economy with biofuels. We, for very obvious reasons, can't.

[DontBeFoolish]

It's not the usage, or how much they can create to begin exporting it to the US. We grow plenty of Sugar Cane in LOUISIANA and HAWAII. IT'S THE TECHNOLOGY that we should be using. It is working technology in Brazil right now, and could be here as well if Chevron,Mobil,Exxon and the others added these pumps in their station.

Signed,
Dontbefoolish......

[leduck]

did you bumb your head?
you sound like a broken record repeating the same old crap over and over again

where are we going to grow sugar cane?
in florida?
in louisana?

we couldn't possibly grow enough of the stuff
to keep you fat dumb and happy

[DontBeFoolish]

Florida would be a nice addition. Right now, we grow it in Louisiana & Hawaii. Also, you dickle. This is America, and if you can dream it. You can acheive it. .

[Tom95134]

"Demand Erosion" Translated, that means they have screwed you as much as they dare... FOR NOW.

OPEC understands that it will take the gullible American SUV driver a few months to get use to the $4.00+/gal price of gasoline before the price can get jacked up again. Besides, since all domestic natural gas is used to generate electricity, and there is not much surplus natural gas around, the Saudis recognize that the American public will not stand for rising gasoline prices at the same time that natural gas prices will be climbing this winter.

Do you want heat, gasoline, or food? Your choice.

[KillTheMessenger]

"Do you want heat, gasoline, or food? Your choice."

I can afford all three. If you can't, you need to generate more income.

[leduck]

thanks ksa but no thanks
you're not doing me any favors by increasing production
i'd rather it stay in the ground a little while longer

personally..., i'd prefer to stretch out the bell curve and stay on the plateau as long as possible

and i know we're only talking days maybe..., but..., my gut says..., if anything, lower production a little
so we can try to stretch this thing out

as bad as it is now..., it will be far worse when we hit terminal decline

[KillTheMessenger]

First sane post in this thread. Everyone else seems to be acting like they are a heroin junkie.

[leduck]

that's because we both know about peak oil and are both on more or less the same page

[WasteNJ]

Oil prices are high because those people speculating on Wall Street have inflated the perceived demand. Basically, the trading of oil commodities has supplanted the actual buying of gas/oil at the pump as the marker for "demand". It's an artificial demand, which is pushing prices, even though we as Americans aren't really using more.

Relaxed regulations put in place by Reagan and Bush 1 have created the climate for this, and it's exactly what Enron did--trading paper to inflate the price/demand of something, until eventually, the bottom falls out.

The Saudis know that this is the case, so for them to say that they are scared of demand dropping doesn't seem like a "real reason to raise production.
With demand being driven by speculation, they know that is artificial demand, they may just be playing into what people already believe-that the demand of consumers is driving price, like maybe it's a PR move. Not sure about that.

[UltraClassic]

Drill here, drill now, or buck up, pay up and shut up.

[leduck]

Drill here, drill now.....

drill where?
where there is no oil trap?
what's the point
if there is no oil trap then you're wasting money drilling the holes for nothing
drill in the u.s.???
we can't revearse our production to match 1971
that would be impossible

drill offshore -- fine but don't expect it to be cheap

[KillTheMessenger]

If he is part of a rig crew, he does not care to drill dry holes. He gets paid anyway.

[kingcityguru]

There is more than enough oil in the Canadian Tar Sands to replace every drop that the US gets from the mid-East. Focus on developing that source in an environmentally sound was as possible as Connacher Oil has demonstrated to get off mid-East oil and spend the rest of your time finding alternatives that don't emit CO2 or air pollutants (my fav is mandating electric cars in 15 years and using that period of time to build enough nuclear generators (CO2 and air pollution free) to fuel them all (a majority of the world's uranium is in Canada, the US and Australia). Do that and the US need not care what happens in the midEast in 20 years.

[leduck]

yes there are a ton of canadian tar sands
so what....
it's not light sweet crude that's easy to pump out of the ground
it has a low flow rate
or a low production rate
it will never match the flow of KSA

so it will last a long time but never amount to the number of barrels per day we get from KSA

[KillTheMessenger]

Wow... we got ourselves a little optimist without any knowledge about engineering fundamentals here. But keep up the good hoping. That will change the laws of nature, friend.

[KillTheMessenger]

Hey, that's working really well! Prices are down already! Without KSA intervention we would be probing the 150s right now. As it is, we are still at 140.

:-)

[EnuffsEnuffAlready]

"Permanent demand erosion" aye? As in, hey, those Americans are cutting back on producing new SUVs and gas-guzzler trucks. They're going to end up soon with so many fuel-efficient smaller cars that the demand will fall for years and years.

Can't have that. Let's boost production, get the price down a ways, and those stupid Americans will relax and go right back to buying and driving their gas hogs.

[KillTheMessenger]

It won't make a difference for demand. The demand growth in China and India will swamp anything the US can do to reduce their demand. What driving a smaller car does, though, is to permanently lower the owner's household spending. And that is the one thing that really counts.

[Capitolist]

funny. Saudis increase production and Barrel price still increases.
Why isn't anybody talking about the dollar value?

[KillTheMessenger]

The dollar is a goner. It will take decades to recover from America's bad spending habits. So no need to even go there.

[leduck]

If people switch to buying oil in euros, then the dollar's a goner.
right now it's on life support.
If and when the switch is eventually made, there will be no recovery from our bad spending habits.
Maybe the biggest default ever seen
The scary thing..., no one wants our dollars anymore except to buy oil.