Report: Saudis to raise oil production unilaterally

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, June 10 -- Saudi Arabia will increase its oil production to 10 million b/d in an effort to meet rising global demand, especially in China, where imports rose by 876,000 b/d in May over last year.

Saudi Arabia’s Al-Hayat newspaper said the country’s oil officials have decided to boost production in July up from the current 9.3 million b/d, with most of the additional output going to China and other growing Asian economies.

The International Energy Agency expects Asia to consume 900,000 b/d more oil in 2011 than 2010, over 70% of the 1.29 million b/d global demand growth forecast for the year.

Saudi officials did not deny the Al-Hayat report, a fact that oil analysts and others took as significant given its appearance in the country’s tightly controlled press.

Most analysts saw Saudi Arabia as attempting to counter the outcome of this week’s meeting of the Organization of the Petroleum Exporting Countries when the kingdom’s proposal to boost output to 30.3 million b/d was rejected by a majority of other members led by Iran (OGJ Online, June 8, 2011).

Saudi Arabia’s Minister of Petroleum and Mineral Resources Ali ali-Naimi said opponents of the output boost were obstinate, while Iran's OPEC Gov. Mohammad Ali Khatibi said Riyadh had been overly influenced by US-led consumer country demands for cheaper fuel.

Following the June 8 OPEC meeting, Al-Naimi waved off concerns that his country would be unable to increase output to meet growing demands. "Just send the customers, don't worry about the volumes," Al-Naimi said when asked if Saudi Arabia would reach its production goal.

“Saudi Arabia is meeting an Iranian challenge,” said an article published online by the Dubai-based, Saudi-owned Al Arabiya news organization. “The kingdom signaled its intention to confront Iran and meet potential shortages in supply.”

That view was shared by a number of independent oil analysts, including Sam Ciszuk at IHS Global Insight, who said that the Saudi intention is to show that they cannot be pushed around.

“The hawks in OPEC called [the Saudis’] bluff and now it is up to Riyadh to show that they were not bluffing—that they will go ahead unilaterally if pushed," said Cizsuk.

“The Saudis are showing they can take unilateral action,” said Andrew Lipow of Lipow Oil Associates. “It will show the markets that the Saudis are serious about tempering further increases in price.”

Saudi Arabia further signaled its intentions by offering more crude to Asian refiners in July. "They are asking if anybody has an interest in additional volumes," said one source at north Asian refiner. "They have not asked us for a while."

The news of Saudi Arabia’s decision to boost output unilaterally coincided with a report by OPEC that forecast a tightening world oil market in the rest of 2011, underscoring the need for more supply to meet rising demand.

In its monthly report, OPEC said world demand for its crude oil would average 30.7 million b/d in this year’s second half, much higher than the 28.97 million b/d the 12-member group produced in May.

"Looking to the remainder of this year, the expected supply-demand balance indicates a tightening market," the OPEC report said. "As a result, global inventories could continue to decline as the market enters a period of high seasonal demand."

Contact Eric Watkins at hippalus@yahoo.com.

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