While the market appears to be happy with promises for incremental crude output by Saudi Arabia which has now broken off from the broader OPEC cartel and is doing its own pro-US thing, JPMorgan, which at last check still had a Brent target of $130/bbl, once again introduces an unpleasant dose of reality in the crude story by noting that any increase in crude output by the rogue OPEC state may be offset by production drops in Iraq and Iran. Will Saudi now promise to offset even that drop and hike output to 11 mbd or some other more unbelievable number? Stay tuned for more lies from the "peak oiled" kingdom.

From JPM's Larry Eagles:

Reports vary, but there are indications that Saudi Arabia is poised to increase July crude production to 10.0 mbd. This is not confirmed, and it greatly depends on how they offer it to the market, i.e. are buyers willing to take additional crude at OSPs. If the Saudi increase materializes, the market appears better balanced, as we projected a 600 kbd 3Q2011 shortfall at Saudi production of 9.2 mbd. But developments elsewhere leave us cautious.



First, Iraq is critical to incremental supply, adding about 500 kbd over 2011-2012. Production continues to ramp up, but exports recently hit one of the hard constraints we have flagged for some time. The Basrah loading terminal is said to be operating at maximum capacity, with some additional volumes from Khor Al Amaya terminal. This is limiting southern exports to about 1.7 mbd. Relief will come with new single point moorings (SPM), but the first is not likely to come online until late 2011 at the earliest. Some reports show it coming online in mid-2012. Once it comes online exports should surge, but in the meantime our 3Q and 4Q2011 production outlook may need to be scaled back by 120 kbd and 240 kbd, respectively.



Iran is another piece to the puzzle. Iran reportedly drew down floating crude storage by some 12-14 mb in May. Floating storage stood at about 6 mb at the end of May 2011 versus 30 mb in May 2010. Over June-September last year, Iran reduced floating storage by 26-28 mb. This cannot be repeated in summer of 2011.

And some other news flow analysis from JP Morgan: