Business World

Friday 22 August 2014

Kingdom is facing 'heavy lifting' to meet oil demand

Grant Smith

Published 10/06/2014 | 02:30

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Pumpjack in Motion
Pumpjack in Motion

WILL Saudi Arabia respond to global supply shortfalls by pumping out a record amount of crude oil?

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Ministers from petroleum exporting countries meet this week and it's expected that they will almost certainly leave their oil production ceiling unchanged.

Just six months ago, energy analysts predicted output from the Organisation of Petroleum Exporting Countries (OPEC) would climb too high and Saudi Arabia needed to cut to make room for other suppliers.

They changed their minds after production from Libya, Iran and Iraq failed to rebound as anticipated, and industrialised nations' stockpiles fell to the lowest for the time of year since 2008.

Saudi Arabia may need to pump a record 11 million barrels a day by December to cover the other member nations, said consultants Energy Aspects.

"Now it's not whether the Saudis will make room, but whether they'll keep it going and maintain enough spare capacity," said Jamie Webster, a Washington-based analyst at HIS, an industry researcher.

"OPEC is increasingly having a hard time just doing its job of bringing all the barrels needed."

Even as the North American shale revolution propels US production to a three-decade peak, supply in other parts of the world is faltering. A battle for political control in Libya, pipeline attacks in Iraq and prolonged sanctions against Iran are preventing those nations from reviving output.

While US crude inventories rose to a record in April, restrictions on exports are keeping those supplies in the country, tempering forecasts that global oil prices will decline this year.

As a result, inventories of crude and refined oil in Europe were 86 million barrels below their five-year average at the end of March, according to the IEA.

Saudi Oil Minister Ali Al-Naimi told reporters in Seoul last month that any supply shortage in the oil market can be covered. The kingdom is capable of producing as much as 12.5 million barrels a day of crude and pumped 9.67 million in May, according to data compiled by Bloomberg

Estimates vary on how much Saudi Arabia needs to produce before the end of the year.

"Early this year, expectations around the return of Libyan, and subsequently Iranian, barrels were high," Amrita Sen, the chief oil market strategist at Energy Aspects, said.

"Today those possibilities have diminished substantially. The real question concerns how OPEC will meet higher demand for its crude in the third quarter. The onus falls on Saudi Arabia to do the heavy lifting." (© Bloomberg)

Irish Independent

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