Why Crude Prices Haven't Spiked Over "Peak Oil" Concerns in Saudi Arabia
A U.S. diplomatic cable released by Wikileaks that suggests Saudi Arabia overstated its oil reserves by nearly 40 percent should have, you'd think, sent the price of crude into the stratosphere. It didn't. And while there are legitimate reasons for that, investors, lawmakers and businesses continue to brush off larger and still-lingering question raised by this whole fiasco.
The series of diplomatic cables, first reported by The Guardian, contain information from a serious insider: a former senior Saudi government oil executive. And yet oil prices -- which spiked earlier this month in reaction to unrest in Egypt -- didn't skyrocket. In fact, the U.S. oil prices actually edged downward on reports that inventories here grew. And the rise in Brent crude prices continues to be attributed to the protests in Egypt.
Why the market ignored the cables
The original source of the cable -- Sadad al Husseini, a former senior Saudi oil government official -- has spoken openly in the past about his belief that global oil production will peak by 2015. His comments about Saudi Arabia's oil reserves probably sounded like just another one of his crackpot "peak oil" pronouncements.
What's more, soon after The Guardian reported the story, al Husseini declared the information in the cables were taken out of context. Al Husseini is now saying he doesn't challenge Saudi Arabia's "official" oil-reserve data -- which puts the kingdom's reserves at 260 billion barrels -- at all.
In the end -- and even with these leaked diplomatic cables -- we're still no closer to understanding how much oil Saudi Arabia really has. The kingdom has long been secretive about its most precious resource and only provides unaudited information on its reserves. And yet for some reason, we accept that Saudi's official reserves can essentially stay the same for nearly two decades, while it continues to produce upwards of 10 million barrels of total oil a day (its 2010 figure), according to Energy Information Administration estimates.
Instead, we're left picking at data on the edges of the issue -- like Saudi Arabia's crude exports, which have fallen as its own consumption has risen -- in hopes of getting a clearer picture of the kingdom's reserves.
Photo from Flickr user L.C. Nottaasen, CC 2.0
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