Saudi Arabia said it has raised its production above 10m barrels a day — the highest in months — adding to the view that the kingdom is considering partially unwinding a supply cut deal among global producers.
The move, directly communicated to Opec for its monthly market report, comes ahead of next week’s meeting of energy ministers in Vienna and follows a quiet request from the US that producers raise production to compensate for any losses from Iran due to the reimposition of oil sanctions and keep prices in check.
The kingdom told Opec it had raised output to 10.03m barrels a day in May, up by 161,400 barrels from the previous month. Brent crude had risen above $80 a barrel in recent weeks, but has since retreated to around $77 a barrel.
“Saudi Arabia is keen to push prices lower to appease the US,” analysts at Energy Aspects said in a recent report. “There is a desire to add some barrels to prevent prices from overheating”.
Discussions have taken place between Saudi Arabia and Russia — Opec’s partner in a co-ordinated supply cut effort — about potentially unwinding the deal, raising the prospect of adding as much as 1m b/d back into the market.
Ministers are expected to debate any changes in output policy on June 22-23, but Iraq’s energy minister has already urged producers to not fall under pressure from others to raise output, which he says could trigger another collapse in prices. Iran has also expressed concern about rival producers stepping in to take advantage of sanctions against its energy industry.
The production increase may attract scrutiny as the kingdom has pushed for strict adherence with the cuts deal that came into effect in January 2017 and has been an advocate for higher prices, as the kingdom seeks to fund its expensive domestic economic and social reforms.
But the move also coincides with the summer months when greater amounts of oil is directed towards power plants to meet soaring air conditioning demand in the kingdom.
Data submitted by secondary sources, such as analysts and consultants and which is the metric used to measure compliance with the deal, showed Saudi production rose by 85,000 b/d to a slightly lower level near 9.9m b/d.
Both are still within the kingdom’s allocated target as part of the joint deal.