Saudi Arabia is not backing down from the oil price war for market share, pledging another increase in its crude oil exports starting in May, despite a growing global glut amid crashing demand.
“[T]he Kingdom intends to increase its crude oil exports, starting from May, by about 600 thousand barrels per day, bringing the total of Saudi petroleum exports to 10.6 million barrels per day,” an official at the Saudi Arabian Energy Ministry said on Monday, as carried by the official Saudi Press Agency.
“This increase came as a result of displacing crude with natural gas from the Al-Fadhili gas plant, as a fuel for generating electricity, and from the decrease in local demand for petroleum products due to the decrease in transportation from the precautionary measures in place to limit the coronavirus outbreak,” said Saudi Arabia, OPEC’s top producer and the world’s top oil exporter, which continues to signal an aggressive supply surge amid profoundly depressed global demand.
Earlier this month, the Kingdom said it was intent on unleashing growing crude oil volumes on the market, aiming to significantly boost its crude oil exports to a record-breaking more than 10 million bpd in May.
The Saudis, who launched an all-out price war for market share with Russia after Moscow refused to back deeper cuts, will not only boost April exports from the current 7 million bpd, but it will also grow exports in May by another 250,000 bpd from April. Now supply is expected at 10.6 million bpd starting in May, as per the latest Saudi statement.
At the end of last week, Saudi Arabia denied reports that it was in contact with Russia about potential talks to reach a deal to influence oil prices, which continued to plummet on Monday, with WTI Crude plunging by 5.49 percent to $20.33 at 7:56 a.m. EDT.
According to analysts, no deal can save the market right now as demand destruction could reach 20 million bpd or more in the coming weeks.
By Tsvetana Paraskova for Oilprice.com
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Moreover, to raise its oil exports to 10.6 mbd, Saudi Arabia must raise its current production to almost 13.00 mbd including 3.7 mbd for domestic consumption.
However, Saudi Arabia has never ever had such a production capacity and will never ever achieve one. So the talk about raising its exports to 10.6 mbd from May is a farce. Its production peaked at 9.65 mbd in 2005 and has been in decline since. Saudi Arabia can at best produce some 8.0-9.0 mbd with another 700,000 b/d to 1.0 mbd coming from storage. This is so because its current production comes from five giant but aging and fast-depleting oilfields discovered more than 70 years ago.
The Saudis have been hoodwinking the world for years about the size of their proven oil reserves and their production capacity and they are now at it again by claiming that they can raise their exports from 7 mbd to 10.6 mbd.
Their threat of flooding the global oil market with oil from 1st of April is hot air. Investment banks and analysts should note this and stop influencing oil prices by haphazard claims.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London