Output reaches 10.3m barrels a day in March as kingdom responds to unexpectedly strong global demand.
Saudi Arabia has revved up crude production to its highest rate on record, feeding unexpectedly strong demand from foreign refiners and increased capacity at home.
The oil minister, Ali al-Naimi, said on Tuesday the country produced 10.3m barrels per day (bpd) of crude in March, a figure that would eclipse its previous recent peak of 10.2m bpd in August 2013, according to records going back to the early 1980s.
A few weeks ago Naimi pegged production at about 10m bdp, 350,000 bpd above what Saudi Arabia said it pumped in February. The kingdom produces more than 10% of the world’s crude.
Naimi did not say why production had increased last month. He said in the speech in Riyadh that the kingdom’s output would probably remain at about 10m bpd.
The increase in output reaffirms Saudi Arabia’s vow not to cede market share to higher-cost producers such as US shale drillers or Russian giants. The kingdom and others in the Organisation of Petroleum Exporting Countries (Opec) have refused to cut production to shore up fallen oil prices.
It also highlights the surprising strength of end-user fuel demand, which has helped lift global refinery profit margins to their highest levels in years.
Oil prices rallied on Tuesday after Naimi made separate comments about working with other big producers to stabilise the market – something most analysts see as unlikely in the near future – but it was the production figure that raised eyebrows.
“While April and May could see a small pullback, overall it is clear that Saudi Arabia has reacted to stronger demand for their crude, despite being in an oversupplied market,” the Energy Aspects chief analyst, Amrita Sen, wrote in a note.
Demand was stoked in part by deep discounts on Saudi exports in March as the country offered Asian customers the deepest discounts on its flagship Arab light crude in at least 12 years, according to Reuters data. The state oil firm Saudi Aramco has raised its prices for the following two months, putting May at the highest level since last year.
US imports of Saudi crude rose to more than 950,000 bpd over the four weeks to 27 March, the highest since last September, US data shows.
The Saudi production figure also probably reflects some additional domestic refinery demand.
The 400,000 bpd Yasref refinery, a joint venture between Aramco and China’s Sinopec, has been steadily ramping up production this year and was due to reach full capacity by mid-February. A venture with Total started up in late 2013.
Saudi refineries ran a record 2.2m bpd of crude in December, up from about 1.5m bpd two years earlier, according to the Joint Oil Data Initiative database.
“Production is always going to grab the headlines, but exports will be more important than ever to focus on,” said Mike Wittner, the global head of oil research at Société Générale.
Saudi Arabia also burns more crude to generate power heading into the summer months. Direct use of crude last year rose from around 350,000 bpd in March to nearly 900,000 bpd in July, according to the Joint Oil Data Initiative figures.
Recourse: The Guardian, April 8, 2015