Saudi Arabia suggests it may be increasing its August crude output to a new all-time high as it could give it more leverage to influence the September informal talks on a possible production freeze, Reuters reported on Wednesday, citing industry sources.
Saudi Arabia – OPEC’s biggest producer — pumped a record 10.67 million barrels per day in July, up by some 120,000 bpd compared to June. The Saudis are usually ramping up production in the summer with the higher demand for crude, but what was unusual was that production hit a record high, above last summer’s peak.
After holding output steady in the first half, the Saudis started pumping more from June onwards, and further increases in production would mean attempting to out-produce the world's top oil producer, Russia, which is not an OPEC member. Higher output would also give the Saudis a few more bargaining chips at the September meeting, according to Reuters’ sources.
The Saudis are “quietly telling the market” that production may increase in August to 10.8 million-10.9 million bpd, a non-OPEC source told Reuters.
It seems that Saudi Arabia is mastering the art of tipping the oil prices with a carefully uttered word, and just last week, its oil minister Khalid al-Falih proved that by saying that the Saudis would “take any action to help the market rebalance”. Oil jumped, and investors hurried to cover large bets against the oil prices.
Saudi Arabia will surely be the primary negotiator of any production freeze talks in September. It killed the Doha talks in April, the previous such attempt to reach an agreement, after it insisted that any deal must include Iran, which of course, Iran never agreed to, just having been relieved of several years of oil sanctions.
The September informal meeting between OPEC and non-OPEC partners is largely expected not to reach a production cap deal either.
Today’s reports of increased Saudi output come as former OPEC chief, Chakib Khelil, told Bloomberg that the heavyweight OPEC members Saudi Arabia, Iran and Iraq, as well as non-OPEC Russia, may be willing to agree on a production freeze because they have already grabbed all market shares up for grabs.
Following a downbeat early trade on Wednesday, oil prices began climbing shortly after the Energy Information Administration (EIA) published its weekly inventory report, which showed that crude oil inventories last week fell by 2.5 million barrels in the week to August 12, standing at 521.1 million barrels.
By Tsvetana Paraskova for Oilprice.com
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