HardAssetsInvestor

Written by Sumit Roy  |

December 07, 2011

Crude Oil Report: Saudi Arabia Claims Production Hit 10 Million Barrels Per Day: Does It Matter?

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How significant are the Saudi oil minister’s comments about the kingdom’s production level to the price outlook for crude?

The Energy Information Administration said that U.S. inventories surged for a second week in this week's Weekly Petroleum Status report, but the big story today was news from Saudi Arabia's respected oil minister, Ali al-Naimi, who said that the country's production topped 10 mmbbl/d in November. Some analysts were skeptical, while we question whether it even matters.

The Department of Energy reported this morning that in the week ending Dec. 2, 2011, U.S. crude oil inventories increased by 1.3 million barrels, gasoline inventories increased by 5.1 million barrels, distillate inventories increased by 2.5 million barrels and total petroleum inventories increased by 9.5 million barrels.

Crude oil prices were modestly lower after the latest figures, with Brent just under $110/bbl and WTI near $100.50.

Indeed, Brent has been comfortably hovering near the $110 mark over the past few weeks — even months. The benchmark has not closed more than $5 above or below that level since Oct. 7.

Fundamentals continue to be strong, limiting downside. But at the same time, upside has been limited by ongoing eurozone worries and, perhaps more importantly, due to the level of prices themselves.

Other than a brief period in 2008, and this year, oil prices above $100 are unprecedented in history. The commodity held up well relative to other risk assets during the sell-off in financial markets during September and October — thus naturally it hasn’t rebounded as much.

With the short-term supply outlook improving — both Libyan and Saudi Arabian production have experienced a marked uptick — oil may continue to consolidate in a fairly narrow range until the emergence of a catalyst to move prices decisively.