Published — Wednesday 20 February 2013
Last update 20 February 2013 12:20 am
RIYADH: Saudi Arabia expects to raise its oil output in the second quarter to satisfy higher demand from China and feed economic recovery elsewhere, oil industry sources said.
The Kingdom kept production steady at around 9 million barrels per day (bpd) in January and sources say production has since hovered around that level because buyers have not asked for more.
Saudi cut production sharply in the fourth quarter of last year because of weak economic growth abroad and lower seasonal consumption during cooler weather at home. But exports are expected to rise again in the second quarter, driven by growth in Asia, one industry sources said.
“There are positive economic indicators in the second quarter and demand is picking up from China and if things stay the same there will be more supply coming from Saudi for sure,” the oil industry source said.
“Saudi Arabia always responds to demand, not prices,” the source said, adding that any increase in production for export would probably be modest.
Saudi production in December and January was more than a million barrels below its peak of last summer, when the kingdom’s own oil use soars to meet rising air conditioning demand.
Domestic oil use is likely to rise again in the second quarter, putting upward pressure on production whatever happens to export demand.
A second oil industry source said that the kingdom planned to raise production to meet increased demand for exports, but declined to say when or by how much.
“Demand for Saudi oil will reflect the increase in global oil demand,” the source said, hinting that demand could rise after refineries return from spring maintenance.
With Europe still mired in debt and the US consuming more of its own oil, Chinese demand is the main driver of Saudi oil export demand.
China imported 1.08 million barrels a day of crude from Saudi Arabia in 2012, up 7.24 percent from 2011 and state-run CNPC expects China’s total net imports of crude to rise to about 5.78 million bpd, 7.3 percent higher than 2012.
OPEC’s leading producer and holder of the world’s only significant spare capacity slashed its output by around 700,000 bpd over the last two months of 2012, helping drive a rise in crude prices since early December.
Saudi oil ministry adviser Ibrahim Al-Muhanna said on Jan. 14 that the cuts came in response to lower Saudi domestic and export demand.
Brent oil traded near $ 117.40 barrel yesterday after posting last week its first weekly loss since early January. Crude has risen from $ 109.50 since the start of the year.
According to official Saudi government figures published through the Joint Oil Data Initiative (JODI), Saudi oil demand for power generation rose by 356,000 bpd from March to June 2011 and by 401,000 bpd from March to June 2012.
So even if demand for exports does not increase in the second quarter, Saudi production is likely to rise to meet its own demand for electricity, although this year’s surge in oil burning should be tempered by more gas being made available for power generation.
Chinese customs will release January 2013 import figures later this week.