Saudi Arabia continues to signal to the market that it is not backing down from the oil price war despite the crumbling oil prices amid coronavirus-hit demand and promises of huge extra supply next month.
Oil giant Saudi Aramco will proceed with the reduction of its refinery rates in Saudi Arabia in April and May in order to free up more crude oil for exports, an official at the company told Reuters on Thursday.
Saudi Arabia will continue to supply a record 12.3 million barrels per day (bpd) to the oil market in the coming months, as per order from the energy ministry, the official Saudi Press Agency reported on Wednesday.
The Kingdom is intent on unleashing growing crude oil volumes on the market, aiming to significantly boost its crude oil exports to a record-breaking more than 10 million bpd in May.
The Saudis, who launched an all-out price war for market share with Russia after Moscow refused to back deeper cuts, will not only boost April exports from the current 7 million bpd, but will also grow exports in May by another 250,000 bpd from April.
After the collapse of the OPEC+ production cut deal, OPEC's de facto leader and the world's top oil exporter, Saudi Arabia, promised to flood the market with crude oil as of April 1, sending oil prices into a tailspin and weighing heavily on the market which is being battered by an unprecedented demand shock amid the coronavirus pandemic.
Oil prices naturally reacted to this double whammy of supply and demand shock and crashed to 18-year lows on Wednesday.
Analysts say that $20 oil may not be the bottom as the markets continue to panic with a growing number of countries going into lockdown and restricting domestic and international travel.
Some analysts say oil prices in the teens are not far off, while Paul Sankey, managing director at Mizuho Securities, said "Oil prices can go negative" in a note this week, as carried by Fox Business.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
Comments
Saudi Arabia has never ever had a production capacity of 12.5 million barrels a day (mbd) as it claims and will never ever achieve one. So the talk about raising its production by 3.0 mbd is a farce. Its production peaked at 9.65 mbd in 2005 and has been in decline since. Saudi Arabia can at best produce some 8.0-9.0 mbd with another 700,000 barrels a day (b/d) to 1.0 mbd coming from storage. This is so because its current production is coming from five giant but aging and fast-depleting oilfields discovered more than 70 years ago.
Saudi Arabia can’t flood the global oil market this time without depleting its stored oil. What happens then if the Houthis of Yemen suddenly decide to attack critical Saudi oil assets and cripple their oil production. The only way the Saudis were able to meet their customers’ obligations in the aftermath of the Houthi’s attack in September 2019 which destroyed half of their production was by dipping into their stored oil and buying shipments of crude oil from their allies.
Saudi oil production averaged 10.13 mbd between 2014 and 2018 according to the authoritative 2019 OPEC Annual Statistical Bulletin. In 2014 the year they flooded the global oil market with oil, their production rose from 9.71 mbd to 10.19 mbd in 2015 and 10.46 in 2016 thus only adding 480,000 barrels a day (b/d) and 750,000 b/d respectively to the global oil market. Their average exports during the same period were 7.3 mbd. Their former oil minister Al Naimi was then claiming a production capacity of 12.5 mbd. If that was true, why didn’t they raise their exports to 10.0 mbd. The simple and plain answer is that they never had any production capacity then and they don’t have it now.
Furthermore, if the Saudis are claiming they are capable of exporting 10.0 mbd in April and May, why does Saudi Aramco need to reduce its refinery runs in April and May in order to free up crude oil for exports.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London