Young Saudi oil princes haven’t been sleeping well these past few years.
These poor, unfortunate billionaires are under attack on several fronts, and their list of friends inside OPEC is dwindling… just when things were starting to get back on track.
After all, Brent crude is once again topping $110 per barrel this morning as more than seven and a half million barrels of crude is exported from the country on a daily basis.
Times should be good for the House of Saud… but that’s far from the case.
One of the more pressing Saudi fears is a sanction-free world.
Saudi Arabia’s Post-Sanction Blues
There’s a role reversal of sorts taking place in OPEC. In years past, price hawks like Iran and Venezuela have crusaded for raising crude prices by constraining supply.
That’s understandable, considering the two were unable to flood the world with oil like Saudi Arabia. We heard the volatile rhetoric at practically every meeting that took place of the 12-member oil cartel.
Naturally, the Saudi princes held all the cards. How many times have we heard the Saudis say they’re “comfortable” with prices at the time?
This dynamic changes in a post-sanction era, as Iran can finally broaden its customer base. And with sanctions behind them, Iran will undoubtedly push its quota boundaries (as if breaking quotas wasn’t already a regular occurrence).
And if more Iranian crude hitting the world markets wasn’t enough, the Saudis are also fighting a losing battle in the Gulf of Mexico.
The Gulf Battleground
The post-sanction era is just the tip of the iceberg for Saudi troubles. Approximately 20% of Saudi exports are destined for the United States, and roughly two-thirds of this is shipped to one specific district: PADD 3 (the Gulf Coast).
Thing is, there’s an interesting crisis brewing in PADD 3: things are getting a little too crowded. Understand that this is the area where many refineries are geared toward processing heavier grades of crude oil.
This is crucial for producers like Venezuela, which is producing from the newly christened Hugo Chávez Orinoco Oil Belt. Presently, Venezuela and Saudi Arabia account for 40% of all imports of crude oil and petroleum products in PADD 3.
But it turns out nobody told Canadians that two is company but three’s a crowd. Canada’s presence in PADD 3 imports has grown more than two-fold since 2005:
Now, the number of barrels per day of Canadian oil that flows through PADD 3 may seem like a drop in the bucket to the 1.7 million barrels per day supplied by Venezuela and Saudi Arabia, but a significant boost is on its way once the U.S. government stops kicking the Keystone XL pipeline project down the road. At its peak capacity, the Keystone XL will transport 830,000 barrels per day to refineries in Texas.
Slowly but surely, the Saudis are being squeezed out — at a moment when they can least afford it. At last count, Saudi Arabia must export more than 7.5 million barrels per day this year simply to satisfy government spending (remember, we’re talking about a country that relies on oil revenue for over 90% of its budget).
Sadly, the situation is exacerbated today, which leads us to the elephant in the room…
The Frac’ing Conundrum
Far more threatening than the flood of Iranian oil, a domestic energy crisis, and the war being waged in PADD 3 (the end-destination for nearly 14% of Saudi oil exports) is the competition the Saudi Kingdom faces from the North American shale revolution.
Nowhere else is this more damaging to Saudi sleep cycles than in the heart of Texas. Not only has technology created a red-hot shale play in South Texas, but it’s also breathed new life into one of the oldest oil-producing regions in the United States.
We’re talking about one of the few places left in the United States that is producing more than one million barrels per day!
The party is just starting.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
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