Saudi oil output hits 9.7m barrels a day

Saudi Arabia raised its oil production by 700,000 barrels per day to reach 9.7m b/d last month as the kingdom took unilateral action to meet higher demand for crude, according to the International Energy Agency.

The monthly oil market report, released on Wednesday, provides the first hard evidence of Saudi Arabia’s response to Opec’s failure to reach agreement on raising output quotas during an acrimonious meeting on 8 June.

The IEA expects the Saudi production increase to continue, with “sources from the market and within the kingdom” suggesting that output this month “might rise to as much as 10m b/d”.

But the IEA notes that Saudi Arabia had compelling domestic reasons for pumping more crude in June. Many of the extra barrels will have been supplied to its own refineries, where throughput is believed to have risen by 250,000 b/d in June to reach 1.71m b/d, largely because of the return to full service of the Rabigh facility after a period of routine maintenance.

The kingdom needed more oil for “power generation and water desalination plants during the peak summer season”. The IEA estimates that about half of the extra output – 350,000 b/d – will have entered the international market, mainly for Asian buyers.

Saudi Arabia’s gulf allies with spare capacity, Kuwait and the United Arab Emirates, also boosted their output last month by the modest totals of 50,000 b/d and 80,000 b/d respectively.

However, the IEA noted that total Opec production, including Iraq, of 30m b/d remained “well short” of the anticipated “call” on the cartel’s crude of 31.3m b/d in the third quarter of this year.

Its decision to release strategic reserves for a 30-day period starting on June 23 was designed to “provide a bridge between rising oil demand” in the third quarter and “extra supplies made available by major Opec producers”.

Since then, however, oil prices have climbed back to pre-release levels, with a barrel of Brent crude trading at $118.30 on Tuesday. The report defended the decision, saying it had succeeded in narrowing the spreads between sweet and sour varieties of crude, which came to the fore after Libya’s crisis removed almost 1.6m b/d of light sweet crude from the market, and strengthened refining margins.

“We acknowledge that the impact of the collective action will only be truly evident in hindsight. However, recognising the flexibility and market liquidity it has already provided, we take a resolutely positive view so far,” said the IEA.

On the demand picture, the report provided the IEA’s first forecasts for next year, suggesting that world demand for crude will rise 1.6 per cent, entirely because of growth in the developing world, particularly Asia. While demand in industrialised countries is forecast to fall 0.3 per cent, this will be more than counterbalanced by growth of 3.6 per cent in the rest of the world.

FT