Newspaper reports, citing officials in OPEC, said Saudi Arabia will produce 10 million barrels per day (bpd) in July to meet global market demand, which is expected to rise, compared to 8.8 million bpd in May.
The Saudi decision is being described as significant because it comes just two days after the failure of intense negotiations at the OPEC meeting at its Vienna headquarters.
At the meeting, Saudi Arabia, along with Kuwait, Qatar and the UAE, called for raising production from some 25 million bpd to 30.87 million bpd to meet projected increased global demand of 2 million bpd more oil for the third quarter of this year and 1.5 million for the fourth quarter.
However, Iran, which currently chairs the 12-member OPEC, and six other countries opposed any move to pump more oil.
“We were unable to reach an agreement (on output increase),” said Minister of Petroleum and Mineral Resources Ali Al-Naimi after the Vienna conclave ended on Wednesday. “This is one of the worst meetings we have ever had.”
Experts said the Saudi output hike proposal was in line with industry forecasts, including one from OPEC itself, that more oil is required to stop prices from rising again.
Indian Ambassador Talmiz Ahmad told Arab News that he has seen reports suggesting Saudi Arabia has decided to increase its oil production primarily to make up for the withdrawal of the Libyan oil from the market.
“I do hope that this intervention will lead to a moderation in oil prices,” he said. “Given that India is a major importer of its oil requirements, we welcome any initiative that brings the prices down.”
The Indian ambassador, who is seen among the diplomatic community as an oil industry pundit, reiterated that high oil prices were due to unchecked rampant speculation.
“I would also like to point out that the boost in oil prices have very little to do with demand-and-supply issues,” he said. “It has much more to do with the activities of the speculators, particularly at the New York Mercantile Exchange (NYMEX).”
He called for a robust mechanism to check speculators.
“I do believe that there should be some degree of regulation of what is happening at NYMEX because until we do that NYMEX will continue to boost oil prices to the extent of $40 and possibly even more than that,” the ambassador said.
According to Ahmad, developing countries like India and China, which depend heavily on oil imports, are seriously affected by the activities of the speculators.
“The kind of trading activity that takes place at NYMEX is mind-boggling; some times they trade in a day the actual production for an entire year,” he said.
“This clearly means that the trade is not in regard to real oil; it is in regard to virtual oil.”
European and American oil experts have in the past pointed out the negative effects of speculation. Also, a cursory look at US media reports indicate that the American authorities have recognized the magnitude of the problem but have so far shied away from formulating any solid legislative initiative to regulate the speculative activities of the NYMEX.
According to the latest statistics, India imports 17 percent of its crude oil requirements from Saudi Arabia. From the entire GCC, it imports 50 percent. Add Iran and Iraq and it becomes 80 percent of India’s energy requirements.
Ahmad explained the reason.
“We are buying more and more oil on the spot market. There is a difference between spot market and term contract. A term contract is for one year. Spot market is on the spot — literally on the spot — so we buy more and more on the spot market. Another reason is that Iran and Iraq give India a three-month credit,” said the ambassador.
“When their oil reaches our refineries, in three months we monetize it. By the time you pay them for the crude you have already got the money for your refined products, which is why India is buying more from Iran and Iraq,” he added.
The Saudi move clearly indicates that Riyadh will counteract any disruptions in the market arising from the turmoil sweeping through North Africa and Middle East.
According to oil analysts, the fighting in Libya has taken 1.3 million barrels off the world market, and the turmoil in Yemen and Syria has subtracted an additional 300,000 barrels.
“By signaling its intention to raise production and offering those refiners interested in additional supplies, Saudi Arabia, one of the few if not the only OPEC producer capable of increasing its output, signaled that is capable and willing to act as the stabilizer of the oil market,” said senior researcher James M. Dorsey in his analysis on alarabiya.net.
“Oil consuming nations are certain to be reassured by expectations that Saudi Arabia is likely to thwart Iranian-led efforts to spark a price hike.”
