Monday, June 11, 2012

Saudi Arabia set to clash with Opec over output

Saudi Arabia is on course for a showdown with fellow Opec members at this week’s meeting of the global oil cartel, after it called for a higher output target despite the recent drop in crude prices.

“Our analysis suggests that we will need a higher ceiling than currently exists,” Ali Naimi, Saudi Arabia’s oil minister, said in an interview with the Gulf Oil Review.

Oil prices have fallen sharply over recent months, from a four-year high of $128 a barrel in March to about $100 amid concern about the eurozone debt crisis and the slowdown in the global economy.

Fellow Opec member Iran has blamed Saudi Arabia, Kuwait and the United Arab Emirates for the price drop, accusing them of producing too much oil.

Opec, which supplies 40 per cent of the world’s crude, normally responds to a sharp drop in prices by curbing production. However, Saudi Arabia’s current policy objective now is to prevent crude rising much higher than $100 a barrel, in order to mitigate the risks high oil prices pose to the global economy.

Opec has an official daily production ceiling of 30m barrels. But it has been producing much more than that in recent months, in part to cushion the impact of US and EU efforts to impose sanctions on Iranian oil exports because of the country’s nuclear programme. According to Opec’s oil market reports, the group’s monthly crude output has exceeded 31m b/d for much of this year. Some Arab Gulf producers now want to raise the official ceiling closer to current production levels.

Saudi Arabia is driving the increase. It supplied the market with 9.9m b/d in May – the highest level this year, according to the Gulf Oil Review.

The ramp-up appears to be part of a Saudi strategy to bring prices down, after they surged earlier this year. In a column in Financial Times in March, Mr Naimi said Saudi Arabia would like to see a lower price “that will not hurt the global economic recovery”. In early May, he told reporters that it was vital “to get prices around $100 [per barrel]”.

In the interview, Mr Naimi said Saudi production had “acted as a type of stimulus to the European and world economy”.



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