Saudi crude output hits record high

OREANDA-NEWS. Opec crude production rose to its highest in more than two and a half years last month, as Saudi Arabia boosted output to a record monthly average.

Opec crude production rose by 880,000 b/d to 31.27mn b/d in March, Argus estimates. Saudi Arabia accounted for most of the increase. Its crude exports rose to 6.75mn b/d in the four weeks to 28 March, up by 11pc compared with the four weeks to 28 February, consultancy Oil Movements said.

And Saudi crude output was 10.3mn b/d in March, oil minister Ali Naimi said. This would be the highest monthly average Saudi crude production figure on record, suggesting that Riyadh has no plans to weaken in its resolve to secure market share for "high-efficiency producers" ahead of Opec's next meeting on 5 June.

Naimi said Saudi Arabia would be willing to cut output to boost prices if major non-Opec producers cut too. Saudi Arabia continues to say that a lack of non-Opec co-operation — thinking in particular of Russia and Mexico — was the reason that Opec had to decide on 27 November not to cut its agreed output level. Russian oil production increased to 10.64mn b/d in March, official data show, almost equalling a post-Soviet high of 10.67mn b/d recorded in January.

Oil prices "will improve in the near future", he said. But Naimi is softening his earlier position regarding shale oil. Saudi Arabia is not in competition with shale oil and does not "use oil for political purposes against any country", he said.

Opec members Iraq, Algeria and Libya also raised crude output — the latter by an estimated 210,000 b/d at fields feeding the Marsa el-Hariga and Mellitah export terminals. Production at state-run Agoco's fields in the east of Libya appears steady, although unrest has severely curtailed output elsewhere.

Calmer seas allowed Iraq and Algeria to ship more in March. But unspecified "technical problems" and sabotage on the Kirkuk-Ceyhan pipeline constrained Iraq's exports to the north. Iraqi state-owned marketing company Somo has reduced its April pipeline allocation by 190,000 b/d from March to 260,000 b/d.

Kuwaiti crude output remained constrained by the shut-in of the offshore Khafji field and slowly declining output at the onshore Wafra field — both in the Saudi-Kuwaiti Neutral Zone. In Nigeria, crude output fell by an estimated 90,000 b/d, owing to maintenance on the Nembe Creek pipeline, which carries key Nigerian export grade Bonny Light.

Iranian crude output fell by around 100,000 b/d last month. Crude production is likely to rise if the P5+1 group and Iran agree a final deal on Tehran's nuclear programme at the end of June, leading to an end of sanctions, but the question is when the extra supply will hit the market. Sanctions prevent Iran from offsetting the revenue loss caused by declining crude prices by increasing sales, causing Iran financial shortages and investment delays — such as to its 360,000 b/d Persian Gulf Star refinery — that leave it heavily dependent on imported gasoline. Oil minister Bijan Namdar Zanganeh was in Beijing on 9 April, aiming to sign deals to increase exports to China, Iran's biggest market.

Global oversupply is around 2mn b/d, Opec estimates. Its decision in the 1980s to defend oil prices by cutting production "did not work", Naimi said. Saudi Arabia cut output by more than 7mn b/d in 1980-85, but oil prices fell by more than \$30/bl regardless, he notes. "We are not willing to make the same mistake again," he said. Oil prices rose by \$10/bl in February, but then largely reversed the gains in March — in response to extra Saudi crude supply and expectations of an agreement between Iran and the P5+1 group.