Saudi Arabia has limited additional crude oil production capacity, Wall Street Journal sources revealed on Wednesday.
The sources, who are said to be familiar with Saudi Arabia’s oil production capabilities, were not named.
The mystery surrounding Saudi Arabia’s crude production capabilities has grown in recent weeks amid a tight oil market, Europe’s energy crisis, and the United States’ battle with high retail gasoline prices. Large oil producers such as Saudi Arabia—thought to be one of the only possible swing producers left within OPEC—try to maintain at least some spare capacity that can be turned on to respond to market demands, providing those producers with greater market control.
Alternatively, the market is spooked by a lack of spare capacity—particularly of OPEC’s largest producer—adding more volatility to already volatile oil prices. That fear exists even if that spare capacity is not needed now, simply because it means that should demand increase or supply elsewhere falter, they would be unable to respond to the changing market conditions.
U.S. President Joe Biden just returned from a trip to Saudi Arabia. Upon his return, the President said that he expected Saudi Arabia to boost oil production. Saudi Arabia, however, is bound by the production quota that it agreed to with OPEC+, at least until the end of August. Under that deal, Saudi Arabia’s production quota will be lifted to 11.004 million bpd for that month. After that, Saudi Arabia would be free to produce as much crude oil as it would like, limited only by its willingness to do so and its spare capacity.
Today is not the first time that concerns have been raised that Saudi Arabia’s true spare capacity is quite thin. For June, Saudi Arabia produced 10.424 million bpd, an increase of 60,000 bpd from the month prior. Its allocated quota for the month of June was 10.662—a miss of 238,000 bpd. Its under production lends credence to the notion that Saudi Arabia might not have as much spare capacity as some think.
By Julianne Geiger for Oilprice.com
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