Saudi showing who’s boss, to pump 10mbpd

Reuters/Dubai

Traders work in the crude oil options pit at the New York Mercantile Exchange. Oil prices fell sharply yesterday on the news that Saudi Arabia was offering more oil to Asian customers

Saudi Arabia will raise output to 10mn barrels a day in July,  a Saudi newspaper reported yesterday, as Riyadh goes it alone in unilaterally pumping more outside Opec policy.Citing Opec and industry officials, the newspaper said output would rise from 8.8mn bpd (mbpd) in May. There was no immediate independent verification of the story.The Al Hayat report suggests Riyadh is asserting its authority over fellow members of the Organisation of the Petroleum Exporting Countries after it failed to convince the 12-member group to lift output at an acrimonious meeting in Vienna on Wednesday.“The Saudi intention is to show that they cannot be pushed around,” said Middle East energy analyst Sam Ciszuk at IHS. “Either Opec follows the Saudi lead or they will have problems.”A proposal by Saudi and its Gulf Arab allies the UAE and Kuwait to lift Opec production was blocked by seven producers including Iran, Venezuela and Algeria.The two sides blamed each other for the breakdown in talks. Saudi Oil Minister Ali ali-Naimi called those opposed to the deal obstinate. Iran’s Opec Governor Mohamed Ali Khatibi responded by saying Riyadh had been overly-influenced by US-led consumer country demands for cheaper fuel.“The hawks in Opec called their 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.Saudi Arabia has not pumped 10mn bpd for at least a decade, according to Reuters data, production having peaked at 9.7mbpd in July 2008 after prices hit a record $147 a barrel. It is the only oil producer inside or outside Opec with any significant spare capacity.Asked in Vienna on Thursday whether Saudi would reach 10mn bpd, Naimi said: “Just send the customers, don’t worry about the volumes.”Gulf delegates said Riyadh was planning to pump an average 9.5-9.7mbpd in June. Saudi is already offering more crude to refiners in Asia, which, led by China, is driving a global rise in oil consumption.Forecasts from Opec headquarters show demand will increase about 1.7mbpd in the second half of the year from recent group output of about 29mn bpd.Oil prices fell sharply yesterday on the news that Saudi Arabia was offering more oil to Asian customers, with additional pressure from a stronger dollar and weak equities.Brent’s premium to US crude hit a record high for a second time this week, moving above $19 a barrel, supported by sweet crude production shut in by Libya’s conflict and disrupted North Sea production.Brent crude for July delivery fell $1.08 to $118.49 a barrel by 1705 GMT, pulling back from an earlier $120.07 peak and after closing at a five-week high the previous session.US July crude fell $2.55 to 99.33 barrel, slipping as low as $98.79 and pushing below front-month crude’s 100-day and 20-day moving averages.Meanwhile, Opec forecast world oil supplies would begin to fall short later this year, draining inventories just when demand is expected to hit a seasonal peak.In its monthly report published yesterday, Opec said world demand for its oil would average 30.7mbpd in the second half of the year, much higher than the 28.97mbpd the 12-member group produced in May.The figures suggest the world will be undersupplied by 1.73mbpd – enough to meet demand in an economy the size of France – if Opec does not increase supplies.“Looking to the remainder of this year, the expected supply/demand balance indicates a tightening market,” Opec’s report said. “As a result, global inventories could continue to decline as the market enters a period of high seasonal demand.”The supply gap seen by Opec’s report is even larger than that of the International Energy Agency, which advises consuming countries and had lobbied Opec to raise its oil output before its meeting.According to the IEA, demand for Opec crude will average 29.95mbpd in the second half of the year, or 1.2mbpd more than April production of 28.75mbpd.Analysts said Opec’s report mattered little for oil prices and a bigger focus would be the IEA’s latest forecasts scheduled for release on Thursday.“It’s absolutely market neutral,” said Olivier Jakob of Petromatrix. “What’s going to matter more is the IEA report next week when we will be able to see if there are any more changes.”Opec said its oil output in May rose by about 171,000 bpd to 28.97mbpd as extra supplies from Saudi Arabia, Nigeria and Iraq offset a further decline from Libya. The report pegged Saudi output at 8.86mbpd in May.Opec’s reference crude oil basket price rose further to $113.43 a barrel on Thursday from $111.93 the previous day, Opec said yesterday. The reference basket comprises 12 crudes.