Saudi Arabia ready to lift oil output
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 world's largest oil exporter kept production steady at about 9 million barrels per day (bpd) last month and sources say production has since hovered around that level because buyers have not asked for more.
Saudi Arabia 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 source said.
"There are positive economic indicators in the second quarter and demand is picking up from China. 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 last month was more than a million barrels below its peak of last summer, when the kingdom's own oil use soared 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 United States consuming more of its own oil, Chinese demand is the main driver of Saudi oil export demand. China imported 1.08 million bpd of crude from Saudi Arabia last year, up 7.24 per cent from 2011 and state-run CNPC expects China's total net imports of crude to rise to about 5.78m bpd, 7.3 per cent higher than last year.
Opec's leading producer and holder of the world's only significant spare capacity slashed its output by about 700,000 bpd over the last two months of last year, helping to drive a rise in crude prices since early December.
The Saudi oil ministry adviser Ibrahim Al Muhanna said last month that the cuts came in response to lower Saudi domestic and export demand.
Brent oil traded near US$117.40 per 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 government figures, 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 last year.
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.
Chinese customs will release January import figures later this week.
Updated: February 20, 2013 04:00 AM