Saudi Ara­bia not to freeze oil-pro­duc­tion

The Pak Banker - - MARKETS/SPORTS -

Saudi Ara­bia shot down ru­mors it might cut oil pro­duc­tion, but reaf­firmed its com­mit­ment to an out­put freeze that could re­strict crude flows to mar­ket this sum­mer. With the world's big­gest ex­porter al­ready pump­ing near-record vol­umes, that may not mat­ter.

Last week's pledge to cap pro­duc­tion at Jan­uary lev­els along with Rus­sia, Venezuela and Qatar -- re­peated Tues­day in Hous­ton by Saudi Oil Min­is­ter Ali alNaimi -- could mean the Middle East­ern na­tion re­frains from the typ­i­cal out­put boost needed to feed the sum­mer in­crease in do­mes­tic de­mand. For­go­ing that surge would, in the­ory, de­prive the mar­ket of ex­ports equiv­a­lent to about a quar­ter of the cur­rent global crude sur­plus.

"Come sum­mer, the pro­duc­tion freeze will amount to a cut in Saudi crude ex­ports," said Olivier Jakob, man­ag­ing di­rec­tor of con­sul­tant Petro­ma­trix GmbH in Zug, Switzer­land. "By hold­ing sup­ply at Jan­uary lev­els and not in­creas­ing when their do­mes­tic re­quire­ment for power gen­er­a­tion is at its peak, there will be about 500,000 bar­rels a day less Saudi crude mak­ing its way to global mar­kets."

Saudi Ara­bia has on av­er­age boosted out­put by about 360,000 bar­rels a day from Jan­uary lev­els to the sea­sonal peak in June and July, ac­cord­ing to fig­ures go­ing back to 2002 from the Riyad­hbased Joint Or­gan­i­sa­tions Data Ini­tia­tive.

Over the same pe­riod, the amount of crude the coun­try burns to gen­er­ate elec­tric­ity typ­i­cally rises by as much as 500,000 bar­rels a day as cit­i­zens turn up their air con­di­tion­ing, the data show.

"The mar­ket is still as­sum­ing a big sum­mer swing up" in Saudi pro­duc­tion this year, said Am­rita Sen, chief oil an­a­lyst at con­sul­tants En­ergy Aspects Ltd. in Lon­don. "The freeze is mak­ing peo­ple think Saudi ex­ports may now have to be down over the sum­mer." With Saudi Ara­bia's pro­duc­tion al­ready at near-record lev­els, a dip in ex­ports wouldn't leave the mar­ket short.

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