Saudi Arabia could boost oil output by 2m, but not soon

PRICES EXPECTED TO REMAIN AT ELEVATED LEVELS DUE TO SUPPLY CONCERNS

It would be difficult for Saudi Arabia — as suggested in a tweet by US President Donald Trump on Saturday — to immediately pump an additional two million barrels of oil per day, and only after additional investments in its oil sectors, according to analysts.

Trump said he complained to Saudi Arabia’s King Salman Bin Abdul Aziz Al Saud that prices are too high and asked Saudi Arabia to increase oil production by two million barrels to make up the difference. According to Saudi’s news agency, King Salman told Trump on Saturday that the kingdom maintains two million barrels per day of spare capacity, which it will prudently use if and when necessary to ensure market balance and stability, but they did not say they would increase production.

“It’s difficult to bring in two million barrels of oil per day on-stream immediately. The potential is there but it is not something that can be done tomorrow. It takes a little bit of time, it takes a lot of investment and a lot of preparation,” Jaafar Al Taie, managing director of Manaar Energy in Abu Dhabi, told Gulf News.

He said Saudi Arabia can increase production by 300,000 barrels per day (bpd) within three months and 500,000 bpd within six months and possibly one million within a year, depending on investment and market conditions.

The UAE and Kuwait can bring in additional capacity of 100,000 to 300,000 bpd within the next six months, he said, adding that Iraq also has the potential to increase production but the real capacity is with Saudi Arabia.

“What the Saudi king is talking about is the nominal capacity and not the real capacity which is half of that now. They have the capacity of two million barrels per day in the long run.

Complex market

“Aramco has a very good view of the market and the market is quite complex. Trump doesn’t have a deep understanding of the oil market. The statements are for the US elections to bring petrol prices down.” Even if the kingdom could increase production that quickly, Opec is trying to keep oil prices at a reasonable levels within the range of $60 (Dh220) to $80 per barrel to benefit their economies and also to see that global oil demand remains healthy. Just last week.

Edward Bell, commodity analyst from Emirates NBD, also said there is a lot of uncertainty about the 2 million barrels per day increase in capacity from the May level of about ten million barrels. “Saudi Arabia was committed to stable oil markets, which in their view is an increase of production to avoid prices spiking up to levels that are too high. Whether or not, it is an increase of same size that trump has tweeted about that is highly uncertain.”

“If they were to raise production by two million barrels per day, that means you will be using up all of Saudi Arabia’s capacity for oil production and it’s never been tested to produce at that level. And it’s uncertain how quickly they could get production up to that level and how well they can maintain that,” he said, adding that prices are expected to remain high in the coming months due to supply concerns.

Francisco Quintana, head of strategy at Foresight Advisors said that it is unlikely that Saudi Arabia would agree to expand output by 2 million bpd given technical capacity constraints and diplomatic constraints.

“Such expansion would imply the acknowledgement that both Opec and the Saudi- Russia cooperation agreement are dead. Most probably, Saudi has reassured Trump about expanding production and Trump came up with the number by himself. Markets know that, so we expect a moderate decline in prices next week.”

Iran will allow private companies to export crude oil, part of a strategy to counter US sanctions, and is urging fellow Opec members, including regional rival Saudi Arabia, not to break output agreements, state media and officials said yesterday.

Iran is looking at ways to keep exporting oil as well as other measures to counter sanctions after the United States told allies to cut all imports of Iranian oil from November.

“Iranian crude oil will be offered on the bourse and the private sector can export it in a transparent way,” First Vice President Eshaq Jahangiri told an economic event in Tehran broadcast live on state television.

“We want to defeat America’s efforts ... to stop Iran’s oil exports,” he said.

“Oil is already being offered Iran had been pushing hard for oil producers to hold output steady as US sanctions are expected to hit its exports.

But Saudi Arabia, Opec’s biggest producer, was keen to raise output to meet calls from Trump and major consumers such as India and China to help cool oil prices and avoid shortages, according to Saudi officials including Energy Minister Khalid Al Falih. on the bourse, about 60,000 barrels per day, but that has been only for exports of oil products,” Jahangiri said. Iran has an oil and petrochemicals bourse as part of its mercantile exchange.

Unilateral measures

Meanwhile, Iranian Oil Minister Bijan Zanganeh sent a letter to Opec asking its members to adhere to the group’s agreement reached last month to collectively raise output and “refrain from any unilateral measures” that could undermine the unity of the producer group.

Referring to reports that Saudi Arabia may increase its oil exports to replace Iranian oil in world markets, Jahangiri said: “Anyone trying to take away Iran’s oil market [share] would be committing great treachery against Iran and will one day pay for it.” The leader of Saudi Arabia promised US President Donald Trump that he can raise oil production if needed and the country has 2 million barrels per day of spare capacity, the White House said on Saturday.

The Organisation of Petroleum Exporting Countries agreed with Russia and other oil-producing allies on June 23 to raise output from July, with Saudi Arabia pledging a “measurable” supply boost, but giving no specific numbers.

“Any increase in the production by any member country beyond commitments stipulated in Opec’s decisions ... would constitute breach of the agreement,” Zanganeh wrote in his letter, seen by Reuters and also reported by state media yesterday.