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Are Saudi Oil Reserves Vastly Overstated, Causing Future Shortages?

February 6th, 2014 | by Morris Beschloss | Comments

For decades, Saudi Arabia has been the focal point of global oil pricing stability; not only because of their pivotal leadership of OPEC for more than 40 years, but the world’s reliance on Riyadh as the swing factor at times of oil shortages. The Saudis could always be relied upon to raise their production levels from 9 million barrels a day to as much as 12 million BPD, when spasmodic Middle East availability caught the world short, threatening out-of-control price crises.

It was the Saudis that led the embargo against the West in 1973, to punish first world nations, including the U.S., for supporting Israel in the “Yom Kippur War.” Those antics, in which Iran also participated, and brought oil prices up from $2 to $10 a barrel in 90 days, panicked the U.S., whose oil production was shrinking. On the other hand, Saudi Arabia filled the gap when Iran was sanctioned a few years ago, and civil strife in the Mideast threatened new shortages. Although the Saudis again filled the gap at that time, increasing doubt is being cast on Saudi Arabia’s reserves today.

Although Russia is capable of matching the Saudis’ “pumping” capacity, one-third of its “crude” is utilized for domestic purposes. Also, Putin & Company’s geopolitical objectives are increasingly at odds with the West. They are not interested in pulling the developing world’s “chestnuts from the fire” at a time of geopolitical strife. Despite the U.S.’s embryonic “fracking” success and Canada’s oil sands surge, the Saudis reported 268 billion reserve barrels of Brent crude are now being questioned. The last time Saudi oil was under independent audit in the 1970′s, they were estimated at less than 120 billion barrels. Between 1980 and 1990, the Saudis claimed over 160 billions in reserves.

Since then, they have claimed a jump to the current 268 billion barrels, while heavily pumping five major oil fields 40 to 67 years old. In a recent attempt to bring worldwide heavy Brent crude down to $100 a barrel in the last two years, their output has declined 19% and failed to dent the continued global per barrel pricing of $105-110 per barrel. While 78 billion barrels of oil have been pumped by the Saudis since 1987, and no major new finds initiated, it’s estimated that Saudi oil reserves are overstated by as much as 40%.

That opens the question as to whether that once mighty OPEC oil dominator will be falling far short; especially at a time when the developing world, and the global recovering economic powers are depending on what increasingly looks like a vastly overstated reserve hoax.

While Southeast Asian oil demand is soaring, and with China now growing from 8.2 million barrels in 2010 to a current 10.2 million barrels a day, Beijing is on track to sell 20.3 million autos this year. Expectations are that China will need 11 million BPD by 2015. If these respective supply/demand inversions become manifest, it’s highly likely that both oil prices and their derivatives, as well as the American “fracking revolution,” will be their upcoming beneficiaries.
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