Crude oil storage tanks
Crude oil storage tanks at the Juaymah tank farm at Saudi Aramco’s Ras Tanura oil refinery. Image Credit: Bloomberg

Dubai: Saudi Arabia, Opec’s biggest producer, produced a record 11.1 million-11.3 million barrels of oil per day in November, indicating that the kingdom may have ramped up production on expectations they would be able to bridge the supply gap left by sanctions-hit Iran.

But a U-turn by the United States, which was planning to issue sanctions against Iran from November 4, meant keeping the supply window open for Iran by allowing eight countries including India and China, the major buyers of Iranian cargoes, to continue importing oil from Iran for 180 days.

11.3m

barrels of oil per day produced by Saudi Arabia in November

This meant a 360-degree turn from a market that was short in supply to oversupply, causing a more than 36 per cent fall in Brent crude prices from a high of more than $86 (Dh315) per barrel on October 3 to $60.10 on Monday.

Following the almost one-third collapse in the price, Saudi Arabia and others will undoubtedly seek to reign back production to support the price back to and above $70. How successful they will be in this quest depends on how much they dare cross swords with President Trump who has asked for lower prices.

- Ole Hansen, Saxo Bank

“Saudi Arabia responded as they promised to the US request of keeping the market well supplied and due to strong demand for its oil. Unfortunately this ramping up of the production hit the market this month when the US surprised the market by granting waivers thereby allowing Iranian oil to flow in bigger quantities than expected,” Ole Hansen, head of commodity strategy at Saxo Bank told Gulf News.

1.8m bpd

output cut by Opec and others agreed in November 2017

Saudi Arabia produced 10.8 million-10.9 million barrels of oil in the previous month, according to data. The November figure breached the previous record of 10.3 million barrels per day produced in March 2015. The figure was considered to be highest since the availability of records from 1980. Saudi Arabia produced 10.65 million barrels of oil per day in October with a promise of increasing output to meet the demand.

Positioning

“It might also be positioning ahead of the December meeting, if the Saudis are preparing to agree to pare back [along with everyone else] at the meeting. Cutting from a higher level is always better. We have seen this before with producers ramping up just before they expect to agree a reduction,” Vandana Hari, founder and chief executive officer of Singapore-based Vandana Insights said.

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The disclosure comes ahead of the vital Group of 20 (G20) meeting in Argentina on Friday and Saturday followed by the Opec and non-Opec meeting on December 6.

Saudi Arabia and other producers have supported another cut in oil production to cut excess supplies in the market.

Opec and its non-Opec partners have extended cooperation to ensure balance and market stability.

“Following the almost one-third collapse in the price, Saudi Arabia and others will undoubtedly seek to reign back production to support the price back to and above $70. How successful they will be in this quest depends on how much they dare cross swords with President Trump who has asked for lower prices,” Hansen said.

10.65m

barrels of oil per day produced by Saudi Arabia in October

Saudi Arabia has indicated sharper cuts in oil production from Opec and non-Opec countries at its meeting next week.

The producer group, along with Russia and others, had agreed to cut production by 1.8 mbpd from November 2017 to prop-up prices.

“I fully expect the Opec/non-Opec ministers to agree a deeper cut for 2019. Crude’s latest plunge last week, which took Brent to below the $60 psychological level, all but sealed it. I think the Russians should also be on board now,” Hari said.

Francisco Quintana, head of strategy at Foresight Adviser expects a recovery in oil prices.

“Higher Saudi production will also hurt Iranian exports, but that is unlikely to be the driver of rising output” Quintana said. “In this environment — high output now, a moderate decline at the Opec meeting — we expect prices to increase moderately before year, close to $70.”