Saudi readies to boost supplies

With Washington poised to curtail Iran’s oil exports, OPEC heavyweight Saudi Arabia and its partners stand ready to ramp up supplies. Analysts expect that Iran’s oil exports, which reach around 2.5 million barrels per day in normal times, to plunge by one million to two million bpd when sanctions take effect today. Outages in Libya, Venezuela, Nigeria, Mexico, Angola and others forced OPEC and nonOPEC producers in June to abandon an agreed cut in output and boost supplies.

“We are entering a very crucial period for the oil market,” the International Energy Agency said in a September report. “Things are tightening up.” Saudi Arabia is the only producer with significant spare capacity of around two million bpd that can be tapped into to compensate for the loss of Iranian supplies. Saudi Energy Minister Khalid al-Falih said his country, which raised output by 700,000 bpd to 10.7 million bpd in October, was prepared to further bump up production to 12 million bpd.

“We have sanctions on Iran and nobody has a clue what Iranian exports will be,” he told the Russian news agency Tass last week. Falih said the kingdom could turn to its huge strategic reserves of around 300 billion barrels to meet global demand. Saudi Arabia’s neighbours the United Arab Emirates and Kuwait can also raise their output by up to 300,000 bpd if needed. Some estimates show Iran’s crude exports have already dropped by a third since May with even companies from traditional clients China and India abandoning purchases.

Anas al-Hajji, a Houston-based oil expert, said he believes the market is well-supplied and that Saudi Arabia does not need to exceed production of 11 million bpd. “They (Saudi) have 12 million bpd capacity, but there is no need for Saudi Arabia to use all its spare capacity,” he said. “People forget that demand declines in the first quarter relative to the fourth quarter, and the IEA expects a one million bpd decline,” Hajji said. Oil prices which rebounded from under $30 a barrel in early 2016 to a four-year high of over $86 a barrel in early October have fallen to around $75 due to fears of weaker global demand.