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Anorak | Saudi Arabia Can’t Solve Libya: The Myth Of Spare Oil Capacity

Saudi Arabia Can’t Solve Libya: The Myth Of Spare Oil Capacity

by | 24th, February 2011

THE talk in the news is that if Libya’s oil stays offline it’s the world’s 12th largest producer Saudi Arabia can make up for any short fall. But it’s not that easy. Barclays Capital’s Amrita Sen explains:

Firstly, the grades and quality of crude available from Saudi Arabia [are] likely to be different from Libya. For instance, the volume-weighted average of Libyan grades would have an API of around 37-38, while the current shut in Saudi production is biased towards medium crude. Moreover, Libyan crude is sweeter…

Prompt Brent markets have also flipped into slight backwardation, a trend we expect to continue in the short term, if sourcing immediate supplies is the concern. Moreover, the time taken to bring those Saudi barrels to the market is likely to be significantly longer compared to the ongoing Libyan production. Thus, the concept of a barrel for barrel replacement is not a correct one.

Gregor MacDonald explains spare capacity theory:

Of course, “everyone knows” that OPEC is sitting on lots of oil. However, as has been discussed here, at  The Oil Drum , and elsewhere it remains decidedly unclear whether Saudi Arabia can indeed turn on extra taps at will. But the problems for world supply of oil do not merely end with production capacity. Even if OPEC is indeed sitting on 1-3 mbpd of

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Posted: 24th, February 2011 | In: Money Comment (1) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink