Saudi Arabia has cut oil output to its lowest level for a year as a combination of surging US crude production and weakening economic growth sapped demand.
The sharp fall in Saudi production, details of which were published ahead of a meeting in Vienna of the Opec oil cartel, contrasts with surging US energy output as hydraulic fracturing or “fracking” have unlocked vast quantities of shale oil and gas.
US oil production rose by 760,000 barrels a day this year – the largest increase in annual output since crude oil started to be pumped commercially in the US in 1859 – according to fresh US government estimates released on Tuesday.
Adam Sieminski, head of the US Energy Information Administration, said increased drilling in the tight shale formations of North Dakota, Montana and Texas “will boost US crude oil production above 7m barrels per day next year for the first time since 1992”.
Meanwhile, figures published on the eve of the Vienna meeting of Opec showed that Saudi Arabia pumped 9.5m barrels a day in November, the lowest level in a year and down from the 30-year high of 10.1m b/d set in June.
The fall in Saudi production reduced overall Opec output to 30.78m b/d in November, the lowest in almost a year.
Opec is likely to keep its official output levels unchanged on Wednesday. A year ago it agreed a 30m-barrel-a-day ceiling, but did not assign production quotas to individual members. That gave Saudi a free hand to moderate output, and is a policy that is likely to continue.
Riyadh’s flexible export policy has been credited with keeping oil prices stable in recent months, despite continuing tensions in the Middle East in the aftermath of the Arab Spring. The kingdom increased production to make up for barrels lost to global markets as a result of sanctions against Iran.
Brent crude futures have fluctuated within a range of about $6 in recent weeks, between $106 and $112 a barrel. Brent was 29 cents higher on Tuesday at $107.62.
Even with the cuts, analysts said Opec may have been overproducing, leading to higher oil inventories in industrialised countries. “If Opec continues oil production at these levels into next year, the oversupply will rise, putting downward pressure on prices,” said Carsten Fritsch of Commerzbank.
So far, geopolitical tensions in the Middle East have meant prices have stayed high. The violence in Syria has combined with renewed unrest in Egypt and worries about Iran’s nuclear programme to maintain oil-market jitters.
At their meeting in Vienna, Opec ministers will also try to agree on a new secretary-
general. Candidates from Iran, Iraq and Saudi Arabia are vying for the post, currently occupied by Abdalla El-Badri.
The process has been complicated by deep-seated rivalries between Riyadh and Tehran. With no sign of a compromise candidate emerging, ministers are expected to ask Mr El-Badri to stay in the job for another six months.