VIENNA (Reuters) – Saudi Arabia is planning to lift oil output sharply in June, whatever policy OPEC adopts this week, in an effort to rein in high fuel prices.
Riyadh expects to lift production by more than 500,000 barrels a day in June to its highest for three years, a senior Gulf industry official familiar with Saudi oil policy told Reuters.
Worried about the impact on economic growth of inflated energy costs, Saudi is prepared to act alone to keep a lid on prices now at $114 a barrel for benchmark Brent crude.
Saudi Arabia is pushing the Organisation of the Petroleum Exporting Countries to revise its formal output limits at a meeting on Wednesday but, so far, only has the support of its Gulf Arab allies Kuwait and the United Arab Emirates among the 12-member cartel.
“We have to look beyond the second quarter, the market will be tight,” said UAE Oil Minister Dhaen al-Hamli.
The Gulf official said Saudi production was likely to average 9.5-9.7 million bpd in June. A Reuters estimate put output at 8.95 million bpd in May.
Saudi output was last as high in the middle of 2008 after oil prices set a record $147 a barrel, shortly before recession sent prices crashing.
The extra Saudi supply won’t all go for export. Direct crude burn at power plants to fuel summer air conditioning and higher refinery throughput for the return to service after maintenance of the Red Sea Rabigh refinery will soak up a significant proportion, a Middle East analyst said.
Riyadh’s production intentions may overshadow an OPEC meeting which Gulf Arab producers want to restore credibility to the producer group’s out-of-date supply limits.
Gulf Arab producers want, at least, to close the 1.4 million bpd gap between OPEC’s two-and-a-half year old official production limit of 24.8 million bpd and actual output, estimated by OPEC in April at 26.2 million.
“There is a need for more supply in the market,” Kuwaiti Oil Minister Mohammad al-Busairi told Reuters. “I expect demand to be strong in the third and fourth quarter, the demand will mainly come from Asia.”
“I expect OPEC to increase output during this meeting but I am still unsure how much,” he said.
There is already strong opposition to any production increase from price hawks Iran and Venezuela, with neutral countries among the remaining group likely to be split.
One of them, Iraq, said it was happy with the market as it stands.
“In my opinion the current level is not too high,” said Iraqi Oil Minister Abdul-Kareem Luaibi of $114 Brent. “Recent indications from the oil market as far as the stocks and supplies is good — there is good supply.”