Saudi Arabia pumped oil at the fastest rate in 32 years in August but global supplies still fell by almost 1m barrels a day, putting pressure on the oil stocks of industrialised countries, the International Energy Agency has said.
Massive disruptions to exports from Libya and elsewhere have combined with near record demand from refineries to push the price of benchmark Brent crude above $110 a barrel. Saudi Arabia, the world’s largest exporter, has responded by raising output to record levels. But in its closely watched monthly report on the oil market, the rich countries’ energy watchdog said the market had still tightened over the past month.
“A sharp downturn in Libyan production [was] only partially offset by near record output from Saudi Arabia,” the IEA said.
Opec crude oil production fell to 30.5m b/d in August – the lowest level since at least May according to preliminary IEA estimates. With most Libyan production shut in by striking workers and militias, the spare production capacity in Opec fell below 3m b/d in August as Saudi Arabia, the de facto leader of the producers’ cartel, was forced to raise output to 10.2m b/d.
Opec’s ability to raise production to meet increased demand is a crucial buffer against higher oil prices and the IEA’s gauge of Opec spare capacity is closely watched in the market as a result.
Despite increasing output this year, Saudi Arabia still maintains more than 2m b/d of spare capacity thanks to investments in new fields. The start-up of production at the giant Manifa field this year has increased the country’s sustainable production capacity from less than 12m b/d at the end of last year to 12.4m b/d today, according to the IEA.
And on Thursday Ali al-Naimi, the Saudi oil minister, reiterated his view that the kingdom is ready and able to raise production further to meet demand.
“For the record, oil market fundamentals are good. The market is well balanced,” Mr Naimi said at an industry event in Seoul on Thursday, according to Reuters. “I repeat the message that Saudi Arabia is willing and capable for meeting any demand.”
Abdalla El-Badri, Opec Secretary General, also dismissed concerns about supply shortages: “We won’t see a crisis,” he said at the same event, according to Reuters.
The disruptions to supplies from Opec have, however, pressured stocks in industrialised countries. The IEA said OECD commercial stocks fell to 65m barrels below their five-year average in July, the largest deficit to the long-term average in almost two years.
The significant disruption to supplies combined with the threat of western air strikes on Syria has also led to speculation that the US government may encourage the IEA to tap its reserves of crude oil in a bid to rein in higher prices.
Maria van der Hoeven, the IEA executive director, has said the market is well supplied, however, given an expected fall in demand over the rest of the year. And Antoine Halff, head of the IEA’s oil markets division, added support to her view.
“We have had some pressures in the market, but going forward we think the situation is easing as refineries go into maintenance,” Mr Halff said.
Mr Halff said he expected industrialised countries to be able to replenish their stocks as demand falls. In its monthly report the IEA said stocks could match or even exceed their five-year average by the end of the year, even if Libya fails to produce any oil between now and the end of the year.
Brent crude oil has retreated sharply this week from more than $116 a barrel to $112.38 on Thursday afternoon, as the threat of western air strikes on Syria has appeared to recede.