Saudi Arabia, the world’s largest crude exporter, reduced production to the lowest in 19 months as booming U.S. output and recovering shipments from Iraq threaten to oversupply the global oil market, a Gulf official said.
Production fell 4.9% to 9.025 million barrels a day in December, according to the person with knowledge of the kingdom’s energy policy. The 465,000 barrel cut is the largest monthly drop since November 2008, when Saudi Arabia and other OPEC members slashed supplies amid a global recession.
Brent crude futures today advanced as much as $1.53, or 1.4%, to a three-month high of $113.29 a barrel on the ICE Futures Europe exchange in London. Banks and consultants including Societe Generale SA, the Centre for Global Energy Studies and Jadwa Investment Co. have said the Organization of Petroleum Exporting Countries needs to trim output to prevent excess supply.
“The Saudis are the maestros of managing oil supply,” Kamel al-Harami, an independent energy analyst based in Kuwait City and former head of crude and product marketing at Kuwait Petroleum Corp, said by phone. “This is their tool to balance the market, to keep prices stabilized in a range around $100, when there is oversupply, plus American shale oil and continued Iraqi production.”
The kingdom shipped 9.151 million barrels a day last month, drawing the extra oil from inventories, the official said, asking not to be identified because the information is confidential.
OPEC forecasts published in a monthly report on Dec. 11 indicate the group will need to lower output this year to align supply and demand. The group estimated that demand for its crude will average 29.5 million barrels a day in the first quarter, or about 1.2 million less than it pumped in November.
At the same time, production in member country Iraq is surging as the nation rebuilds its oil industry, with output reaching its highest since 1979. The supply jump propelled the Gulf state to the second-biggest exporter in OPEC.
U.S. oil production exceeded 7 million barrels a day last week for the first time since March 1993 as improved drilling techniques boosted exploration across the country, the Energy Department said yesterday.
Saudi Arabia produced 9.49 million in November, it said in a report to OPEC published last month. The Gulf exporter last produced below this level in May 2011, when it pumped 8.895 million barrels, according to data from the Joint Organizations Data Initiative.
Saudi Arabian Oil Minister Ali al-Naimi said in Cairo on Dec. 21 that “demand matches supply” in the global market and earlier that month described prices, which were about $107 a barrel in London, as “fine.”
Al-Naimi has several times cited $100 a barrel as a suitable level for consumers and producers. The kingdom needs a level of about $80 to cover its budget requirements, according to consultants Petromatrix GmbH in Zug, Switzerland.
Demand for the kingdom’s crude in Asia remains “steady,” said Sadad al-Husseini, who founded and runs Husseini Energy, an independent energy consultant in Dharan, Saudi Arabia, after retiring from Saudi Aramco in 2004. The recovering U.S. economy and fuel consumption within OPEC members will “put pressure” on the nation to maintain output, al-Husseini said.
OPEC’s Secretary-General Abdalla El-Badri urged the group’s 12 members after their last meeting in December to trim output in order to comply with a collective target of 30 million barrels a day. The group will next gather in May.
“OPEC’s ceiling is one of the reasons but not the major drive for the cuts,” Fahd al-Turki, chief economist of Jadwa Investment Co., said by phone from Riyadh. “The major driver for the Saudi cuts is a reduction in domestic demand.”