KUWAIT, (Reuters) – Top oil exporter Saudi Arabia stands ready to fill any oil supply gap – “perceived or real” – as oil prices rally on fears of a potential loss of Iranian output.
“Today the oil market is generally balanced and there is ample production and refining capacity … Saudi Arabia and others remain poised to make good any shortfalls – perceived or real – in crude oil supply,” Oil Minister Ali al-Naimi said on Wednesday in a speech at the International Energy Forum.
The Saudi oil minister has previously said the kingdom was prepared to raise production only if it sees increased demand from customers.
Gulf oil sources told Reuters on Tuesday the United States was pressing Saudi Arabia to boost output to fill a likely supply gap arising from international sanctions on Iran.
Saudi Arabia is the only producer with spare capacity and oil importers will rely on Riyadh to fill the gap should Iranian output and exports drop.
A European Union embargo on Iranian crude takes effect on July 1. U.S. and European financial sanctions have made it more difficult for other importing nations to process payments for Iranian crude.
Oil prices have risen sharply this year to above $125 a barrel for Brent crude. Oil traders are keen to know the likely timing of any Saudi supply increase to counter the expected decline from Iran.
Already running close to record highs of about 10 million bpd, Saudi Arabia says it has the capacity to increase production to 12.5 million bpd. Iran produces below 3.5 million bpd and exports around 2.2 million bpd to world markets.
Saudi Arabia, a key U.S. ally in the region, is also keen to avoid a major spike in tensions with Iran, which the West accuses of developing a nuclear weapon. Tehran denies the accusations and says its atomic programme is peaceful.
Although the stand-off between the West and Iran is the key worry for the oil markets at the moment, the tensions appeared to be a taboo subject at the Forum, the world’s biggest gathering of producing and consuming nations.
Neither Naimi nor OPEC’s Secretary General Abdalla al-Badri mentioned the tensions in their speeches and Iran’s oil minister Rostam Ghasemi only vaguely alluded to the stand-off.
“Unfortunately some big countries who are among the major energy consumers, view oil as one of the basic constituents in their military, security and political strategies and use it as a political tool against oil producing countries,” Ghasemi said in a speech.
“Exerting unilateral economic constraints of political instigations is a threat, which jeopardizes free trade and continuity of oil supply in the world,” said the Iranian minister.
Badri avoided the issue of tensions all together, focusing instead on the need for regulatory reforms to reduce excessive volatility in oil markets by financial speculators.