Saudi Arabia announced Wednesday that it was pumping oil at the fastest rate in decades in a signal to fellow producers and buyers that it intends to meet customer demand, with more output if necessary.
The announcement, which comes a week before a meeting of the Organization of the Petroleum Exporting Countries, has been met with some skepticism by analysts. A senior Saudi oil official said the kingdom produced 10.047 million barrels per day rude of crude oil excluding condensate in November, well above previous estimates.
“Saudi Arabia’s production has been fluctuating this year. It has reached over 10 million bpd in November excluding condensate because consumer demand was higher,” the official said. Saudi Arabia produced 9.40 million bpd in October and 8.25 million bpd in November 2010.
Analysts are interpreting the announcement as a signal to fellow OPEC members that oil demand was high and output should not be restricted.
“This is the highest output since 1980,” said Michael Poulsen of Global Risk Management. “All the extra produced oil is either consumed in the Middle East or on eastbound ships to feed the roaring Asian dragons.”
According to Harry Tchilinguirian, an analyst at BNP Paribas, Saudi Arabia hasn’t produced 10 million bpd in a single month in the last decade. “We do not buy that number,” Tchilinguirian said. “This may simply be case of the usual pre-OPEC meeting build-up in communication where Saudi is showing its strength as the main holder of spare production capacity.”
OPEC meets in Vienna on December 14 to discuss production policy as the European Union considers a ban on oil from OPEC member Iran in a move likely to put further upward pressure on oil prices.
OPEC delegates expect the cartel’s Vienna-based secretariat to recommend an output target of 30 million bpd for the first half of 2012, above anticipated demand for 29.9 million bpd in the first quarter and 28.7 million bpd in the second. Adopting such a high target, which Saudi Arabia would likely support, would allow oil stocks to build and help restrain oil prices.
Brent crude futures have averaged close to $110 a barrel this year, a record high and a level economists say may damage global economic growth, in light of which it appears that Iran has given up its campaign to have Gulf Arab nations cut back supply, deferring to the OPEC secretariat’s guidance.
After an OPEC meeting in June failed to secure a supply pact for the first time in decades, it appears Iran’s decision to defer reflects a desire to avoid a second meeting this year, under its chairmanship, that fails to agree on a deal.
Now as the European Union considers a ban on Iranian oil, OPEC producers are worried that supply restrictions could push up prices. Though Saudi Arabia’s willingness over the past months to boost supply has kept oil prices in check, “Saudi’s spare capacity is diminishing fast, which could mean increased impact from supply disruptions in the future,” said Standard Bank analyst James Zhang.
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Iranian crude oil supplies to Europe will be difficult to replace, said OPEC Secretary-General Abdullah al-Badri. The EU takes more than 600,000 bpd of Iranian oil, nearly a quarter of the country’s exports.