Tensions in Nigeria Negate Saudi Promises To Increase Oil Output

Saudi Arabia promised to increase output by 200,000 barrels to 9.7 million barrels a day.  The Saudi's reassurances of supply increases put nary a dent in price of crude.  Problems in Nigeria,  where attacks last week on Chevron and Royal Dutch Shell pipelines knocked out 375,000 barrel a day of production, have negated the affects of the Saudi increase.  According to the Financial Times, Nigeria now pumps less than 1.5 million barrels a day, its lowest level in 25 years.  This production level is a million barrels less than Nigeria's capacity.  Nigeria, once Africa's largest producer, is now in second place behind Angola.  Once known only for being experts at fighting a never-ending civil war, Angola was granted membership to OPEC in December 2006.  Being the number one African producer of oil should finally give the Angolans something to cheer about.  Let's hope they use the proceeds wisely. 

In addition to declines in Nigerian oil production, production from Russia, Mexico, and the North Sea has fallen by 1.5 million barrels a day since the beginning of 2007.  When put in context of declines in other major oil producers' production capabilities, the Saudi increase appears to be for public relations purposes alone.  Furthermore, skeptics wonder whether Saudi Arabia actually can pump more oil.  As I noted in my last story about soaring crude oil prices , "peak oil" theorists believe that the world's production capabilities have peaked and that the major oil fields, particularly in the Middle East, are in decline.  Continuing evidence of production declines are troubling to say the least and lend support to the argument.  The price of crude remains stubbornly high, despite many sophisticated investors' cries of a bubble (see Barron's and George Soros.)  In fact, according to the Commodity Futures Trading Commission,  the net speculative position in WTI crude futures is actually short.  This is contrary to all of the cries currently bandied about accusing speculators for the high price of oil.  If speculators are shorting oil, how much higher would the price be without their sales?  "Peak oil" believers, who until very recently were considered a bunch of kooky alarmists, are being joined by more mainstream market participants in fearing the worst.