Saudi Arabia is planning to lift oil output sharply in June, whatever policy the Organisation of the Petroleum Exporting Countries, or OPEC, adopts this week, in an effort to rein in high fuel prices. Riyadh expects to lift production by more than 500,000 barrels a day in June to its highest for three years, a senior Gulf industry official familiar with Saudi oil policy told Reuters.
Worried about the impact on economic growth of inflated energy costs, Saudi will act alone if necessary to keep a lid on prices now at $ 114 a barrel for benchmark Brent crude. The biggest producer in OPEC, Saudi wants the group to lift formal output limits at a meeting on Wednesday to show consumer countries that it sees the danger to the economy of runaway oil prices. So far it only has the support of its Gulf Arab allies Kuwait and the UAE among the 12-member group. “I expect OPEC to increase output during this meeting but I am still unsure how much,” Kuwaiti Oil Minister Mohammad Al Busairi told Reuters. “The market will be tight,” said UAE Energy Minister Mohammed bin Dha’en Al Hamili.
Saudi domestic use rising
The Gulf official said Saudi production was likely to average 9.5-9.7 million bpd in June. A Reuters estimate put output at 8.95 million bpd in May. Saudi output was last as high in the middle of 2008 after oil prices set a record $ 147 a barrel, shortly before recession sent prices crashing. “This is a display from the Saudis that they have control,” said Scott Niquist of consultants McKinsey. “OPEC is very eager to have control over the market in the short term. There was a sense that the control that they had was lost. ”The extra Saudi supply won’t all go for export. Direct crude burn at power plants to fuel summer air conditioning and higher refinery throughput for the return to service after maintenance of the Red Sea Rabigh refinery will soak up at least half the increment, Middle East analysts estimate.
Riyadh’s production intentions may overshadow an OPEC meeting which Gulf Arab producers want to restore credibility to the producer group’s out-of-date supply limits. The Gulf producers want, at least, to close the 1.4 million bpd gap between OPEC’s two-and-a-half year old official production limit of 24.8 million bpd and actual output, estimated by OPEC in April at 26.2 million.
“There is a need for more supply in the market,” said Kuwait’s Al Busairi. “I expect demand to be strong in the third and fourth quarter, the demand will mainly come from Asia.” There is strong opposition to any production increase from price hawks Iran and Venezuela, with most neutral countries yet to show their hand. One of them, Iraq, said it was happy with the market as it stands.
“In my opinion the current level is not too high,” said Iraqi Oil Minister Abdul-Kareem Luaibi of $ 114 Brent. “Recent indications from the oil market as far as the stocks and supplies is good — there is good supply.”
Source : Khaleej Times - 08 June, 2011