Global crude oil supply might need some cuts, Saudi Arabia’s Energy Minister Khalid al-Falih told state TV channel al-Ekhbariya as quoted by Reuters, to offset recent increases. “We (have) entered the stage of worrying about this increase,” the official said, adding any reduction in supply would go towards ensuring the stability accomplished as a result of the OPEC+ production-cutting pact sealed at the end of 2016.
The minister’s remarks are somewhat surprising as they come amid worry about loss of supply from Iran once U.S. sanctions enter into effect next month. However, there has also been new concern among market players: that global economic growth may be slowing down and will continue to slow down, ultimately hurting oil demand.
What makes the comments confusing, however, is the fact they come on the heels of earlier statements by Falih that Saudi Arabia is ready to increase production to up to 12 million bpd and also invest in boosting its spare capacity.
“I don’t rule out that the Kingdom’s production which has been 9-10 (million barrels per day) over the last decade or so will be a million to two millions (barrels) higher,” the energy minister told the Saudi Gazette just this Tuesday.
In the same report, Falih was quoted as saying global oil demand would grow from 100 million bpd to 120 million bpd over the next 30 years.
Earlier this month, Falih had said Saudi Arabia will continue boosting its production of crude oil in November as well, after two months of increases, with the October daily rate estimated at 10.7 million bpd. He also made sure the message is clear: "Given the disruptions that have taken place, oil would be easily in the three-digit range had it not been for the extra efforts the kingdom had done," he said as quoted by S&P Global Platts at an industry event in India, "Saudi Arabia has proactively, deliberately and responsibly invested in its spare capacity."
By Irina Slav for Oilprice.com
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On the other hand, he is prevaricating about his promise to raise Saudi production to 12 mbd. He knows that Saudi Arabia couldn’t raise its oil production beyond the 400,000 barrels a day (b/d) that it added to the market two months ago. And even these 400,000 b/d did not come from a rise in production but from stored oil on board oil tankers and on land.
And with the failure of the talks between Saudi Arabia and Kuwait to agree to restart the oilfields in the Neutral Zone which is shared equally between them, Saudi Arabia has lost the opportunity to add 250,000 barrels a day (b/d) more to the market on top of the 400,000 b/d it already added two months ago.
Saudi Arabia has no spare production capacity.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London