WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices

US diplomat convinced by Saudi expert that reserves of world's biggest oil exporter have been overstated by nearly 40%


The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.

The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.

The revelation comes as the oil price has soared in recent weeks to more than $100 a barrel on global demand and tensions in the Middle East. Many analysts expect that the Saudis and their Opec cartel partners would pump more oil if rising prices threatened to choke off demand.

<snip>

http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks

this shouldn't be news to anyone. It's been known for quite some time that the Saudis overstate how much oil they have- plus they pump with seawater- a sure sign of diminished wells.

Nothing not already known.

then prices went down.

that we're there.

SPECULATIVE FEATS AND EXCESSES—CORNERS

A corner has already been defined as the situation that exists when shorts cannot borrow stocks. Technically and strictly speaking, the definition is correct, but it is not comprehensive. A corner is a control or monopoly of a commodity or security, which has been effected for the purpose of raising prices. Those who engineer a corner aim to dominate a given market, such as that for a certain stock or metal, or for one of the staples, such as wheat, coffee or cotton.

The promoters of a corner usually aim not only to dominate prices, but also to create a situation in which they can actually dictate terms to the unfortunate persons who have become ensnared in their trap. The corner takes its name, of course, from the fact that the victims are at bay and must meet the terms of their captors. In other words, they are in a corner.

Corners may take place outside the field of organized speculation. Indeed, the first classic example of a corner, as well as of produce speculation, was the situation described in the Bible, when Pharaoh, upon hearing Joseph's dream, concerning the fat and the lean years, decided to accumulate grain in the period of plenty and good harvests, and to sell it at a higher price later on during a period of scarcity and famine. Speculation, in this case, was of simple character; it consisted merely of buying produce outright and holding it for an inevitable advance. The plan was carried to a successful conclusion, and the Pharaohs waxed rich.

To take a hypothetical case, suppose that the issue of B. T. & D. stock is 500,000 shares, of which A and B own 200,000. These two conspire to work a corner. Quietly, and without arousing suspicion, they begin to buy up shares of the B. T. & D. This unadvertised but active buying gradually boosts up the price of the stock to such a high point that short selling takes place. That is to say, speculators anticipate a slump from the abnormally high price, and consequently sell. When the shorts are requested to deliver the stock to A and B they find themselves in a peculiar position. They cannot deliver the stock because they sold what they did not own, and the only persons from whom they can borrow are A and B the very persons to whom they sold. And of course A and B, since they have bought up all the available supply, will not loan stock on the usual terms.

There are only two alternatives open to sellers. One is to fail to deliver the securities, a method that entails expulsion from the exchange for breaking a contract. The other is to settle at a fixed price determined by the parties to the corner. This amount is known as the "settlement" price. In any case, if the corner succeeds the victims are caught, or squeezed. Usually the manipulators have lulled the suspicions of the shorts by previously lending stocks freely; then, when all is ready they suddenly call in their loans.



http://books.google.com/books?pg=PA271&lpg=PA283&dq=leiter%20corner&sig=Fr9xJx5ElXpariNnm8WrsIaNC9o&ei=4e1RTdDHFI2msQPhtOD-Bg&ct=result&sqi=2&id=t_IJAAAAIAAJ&ots=WvfvH7mkYg&output=text

Why do the Saudi's seem to want to keep the prices down if their reserves are overstated?

Then there's a good change they will demand alternative solutions, possibly including demanding that the government will help develop other sources of energy. Once that happens, the move away from oil will begin in earnest and all that wealth will slowly slip away from Saudi Arabia.

That would make them sad.

Because they should do well even in the end of the oil age by jacking up the price. I wonder if they are biding their time for that and have calculated how it will play out or if they are in a quid pro quo with some other forces (like the US). I'm just trying to fully understand the economics of it and the Saudi motivations here.

n/t

In a monopoly, a company is able to overcharge for an item, but to maximize profits the monopoly must also keep the price down for if the price gets to high, people just will NOT buy the item (This is called "Destruction of Demand" and that is what occurred in 2008 when the US had its second year of no increase in oil usage, in fact the US saw a 5% drop in usage in 2008 compared to 2007. 2007 had been the first year when the US demand had dropped, about .1% compared to 2006).

"Destruction of Demand" hurts monopolies for total profits fall even as profit margins increase. i.e I can sell 100 gallons of Gasoline at $3 a gallon for a total of $300, but can only sell 50 Gallons at $5 a gallon for a total of only $250. If we assume cost is Zero, the holder of the monopoly prefers $3 a Gallon for its means $50 extra. Thus the reason the House of Saud wants lower prices, is to increase total profits even at the cost of profits per gallon of oil.

Not being and economist sometimes leads me guess wrong on such things

Peak oil, smeak oil! :sarcasm:

:crazy: