Friday, June 10, 2011


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Crude oil tumbled the most in four weeks after al-Hayat newspaper reported Saudi Arabia will raise oil production to 10 million barrels a day next month, and on concern the global economic recovery is slowing. During the OPEC meeting Algeria was against raising output, looks like Saudis will go it alone.

But one has to recognize that Saudi oil is sour crude, difficult to refine and more costly, versus sweet crude from Lybia and Algeria. Even though the Saudi's have the capacity to produce more, and would be more than happy to oblige the world by doing so, it wouldn't help because it's the wrong kind of oil.
“It will force all sweet crude refiners into a bidding war,” said Lawrence J. Goldstein, a director at the Energy Policy Research Foundation, an organization partly financed by the oil industry. “Quality matters more than quantity".

Although the world has spare capacity in oil production, it has no spare capacity that can actually be refined.  In short, it has no effective spare capacity in oil production whatsoever.  Because if there was a surge in demand, or a loss of any other sweet oil capacity anywhere in the world, then the supposed Saudi spare capacity couldn't solve that problem either, since, we are told, no-one can refine the stuff right now.  The only problem that Saudi spare capacity can solve is a loss of sour crude production from somewhere else.

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