NEW YORK (TheStreet) -- A fascinating statement from the CEO of Saudi Aramco, the state-owned oil company emerged on Monday, canceling a planned $100 billion expansion program of oil production in the kingdom.
The import of this statement from the Saudis couldn't be clearer -- they believe that supply is ample for at least the next several years and are saying that North American production increases are taking up the slack along with demand declines here in the U.S. to assure steady supply. Our newest technological breakthroughs of oil extraction, specifically from oil sands, shale and drilling offshore are working.
It's quite amazing, actually. For the last three years, the working theory on global oil supply was based upon the "swing" barrels available only through Saudi Arabia. With global demand of oil increasing anywhere from 800,000 to 1.4M barrels a day every year, and with our ability to create new supply apparently limited, we were at the mercy of the Saudis, who maintained the only ready supply of marginal barrels, estimated at anywhere from 2.5 million to 4.5 million barrels a day.
It was this surplus supply that was called upon during the breakout of hostilities in Libya to take up the slack -- it was also this supply that was standing between us and a global shortfall, suggested to begin right about now in the fourth quarter of 2011. With total supply outstripped by ever-growing demand, prices were expected to run well above the highs we've already seen, with predictions for $150, $200, even $250 a barrel.
That's not the way it's turning out and the Saudis, with this announcement, are confirming that.
There are a few different ways to interpret this major announcement. One is that the Saudis are expecting Europe to fall into recession. A second is that the Saudis are looking for a more opportune time to develop further supply. But one obvious takeaway is that the non-conventional supplies of oil that have been coming online here in North America along with the slowing demand here in the U.S. are having their desired effect: We're becoming less dependent on Saudi and other Middle East sources for oil.
This is obviously very good news and also implies that at least energy supply will not be the limiting factor in any recovery that continues to happen, if slowly, here in the U.S.
Names to Know
There have been three unconventional sources that continue to increase our supply options here in North America: Oil Sands, vertical drilling in shale and offshore drilling, primarily in the Gulf of Mexico. As domestic supply choices increase, their associated stocks will also become more worthy to own.
In the Canadian Athabasca, while oil sands have become a controversial source of non-conventional oil, development of this enormous resource is sure to continue at a fast pace, making Canadian oil company
a stock to hold. Of the enormous shale plays for oil in the US, the Bakken continues to explode, with shares of
Kodiak Oil and Gas
Cabot Oil and Gas
some of the companies exposed to this area. Finally, in offshore plays,
is a dominating presence in deepwater rigs, while
ATP Oil and Gas
( ATPG) represents a very speculative but lively stock to look at in the Gulf of Mexico.
What is clear from the Saudi announcement is that they strongly feel that the global market of oil neither needs the development of further supply, nor does the market dynamic make that development advantageous. That implies that our new, technologically advanced oil production methods are working, along with a naturally eroding demand. Now's the time to look at domestic providers of oil who are poised to continue to increase their share of North American production.
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