According to a report by Reuters, Saudi Arabia is set to quietly add extra crude to the market in the coming months, however, the kingdom is worried that rising US production will lead to an oil glut by 2019.
Oil glut predicted as US output expected to rise by 2.4M b/d, but global demand to grow by 1.5M b/d
On Thursday, Reuters reported that Saudi Arabia will quietly increase its production in the coming months to offset a drop in Iranian crude exports expected after the Trump administration’s sanctions against Tehran officially begin on Nov. 4.
But, the kingdom says it may need to cut output next year to curtail an oil glut due to an expected rise in US production.
Last week in a tweet, President Trump demanded that OPEC “must get prices down now!”. At a meeting of OPEC and its supply cut allies (OPEC+) on Sunday, the group publicly announced it will not bow to US pressure and increase production beyond its current cap.
However, Reuters reports that two of its OPEC sources say Saudi Arabia and other alliance producers discussed a possible production increase of 500,000 barrels per day (b/d).
Saudi Arabia reportedly opted to not publicize an official increase because it would not be able to secure an agreement from all producers at the OPEC+ summit. Some of the producers do not have extra capacity and would be unable to quickly increase their production.
The sources also told Reuters that a Saudi announcement about an increase in output would likely unsettle relations among producers at a time when the kingdom is eager to maintain unity in the OPEC+ alliance should future cuts in production be called for.
“There are only two months left until the end of the year, so why create tensions now between Saudi Arabia, Iran and Russia?” one Reuters’ source, familiar with the Algiers meeting told the news agency.
Khalid al-Falih, Saudi Arabia’s Energy Minister said on Sunday that he remains concerned that US production gains could outpace a forecast increase in oil demand, resulting in another oil glut.
“There are more demand threats next year compared to supply threats,” the second source told Reuters.
Despite the concerns, Reuters’ sources say Saudi output could be increased by 200,000-300,000 b/d in the fourth quarter and there may be more room for higher production if necessary.
US oil output is expected to rise by 2.4 million b/d in 2019 and global oil demand is only set to grow by 1.5 million b/d. Saudi Arabia is concerned that a strong US dollar, combined with weaker emerging market economies could cut into global oil demand.
The Trump sanctions on Iranian crude remain a wild card. Iran is OPEC’s third-largest producer with an output of 3.8 million b/d. A report by OPEC shows that Iranian crude supply has fallen by about 300,000 b/d in recent weeks as its customers in Europe and Asia look elsewhere for oil.
Should the oil market tighten more than expected and prices continue to rise, Reuters reports that a OPEC and its allies could offer a formal production increase and will be discussed at a meeting in Vienna on December 6-7.
“The reality is that no one (outside Saudi Arabia) can raise output in the next few weeks. But many can do that in 12 months or so,” one of the sources told Reuters.
This week oil prices topped $80/barrel after the Sunday meeting in Algiers.