Saudi Arabia planning to raise oil production as demand increases

Saudi Arabia is prepared to up its output of oil over the next few months, as worldwide demand increases. This comes on the heels of the June 5 decision by the Organization of Petroleum Exporting Countries to leave the oil production policy of its member countries unchanged in order to maintain global market share.

In May, the country increased production to the highest rate on record: about 10.3 million barrels per day. Typically, the summer months in Saudi Arabia have signaled a lowering of oil exports due to sweltering heat as well as the need to generate power for air conditioning in the country. This season will be different, however, as the global demand for oil continues to rise. Saudi Arabia is ready to meet the need and desire for more oil.

"We have enough in reserves and we have enough production to do so," said Ahmed Al-Subaey, Saudi Aramco's executive director for marketing. "We will match whatever the need is. If the market requires it, we will provide it."

Rise in production may intensify rivalry

In 2014, Saudi Arabia decided to retire its former strategy to cut oil production as a way to keep prices competitive. The country's new long-term production plans could point to a larger plan to keep non-OPEC suppliers out of the market. According to John Hall, chairman of the energy consultancy Alfa Group, "If they cut output next time, the price will rise, but longer term so will the output from other sources like U.S. and possibly Russia."

Saudi Arabia's Ministry of Petroleum and Mineral Resources said the needs of the country's permanent clients, as well as the increased global demand are the reasons for its decision to keep recent production steady. These patrons include the refinery at the Red Sea port of Yanbu, which calls for 400,000 barrels per day.

This move will also boost competition between Saudi Arabia and its oil rival, Iraq, which produced 3.8 million barrels a day in May. Yet, while these two countries are still battling for power in the Middle East, the global market itself is heavily saturated with other large oil producers, like America. The discovery of a large supply of shale oil has produced two million more barrels per day than is needed and has made the U.S. the world's biggest oil producer in 2014. The 15.9 percent increase in shale production also kept oil prices low around the world, according to BP's Statistical Review of World Energy.

The strategy to keep oil production steady without any cutbacks by both Saudi Arabia and OPEC is a major factor in the decline in oil prices over the last year. This plan benefits both consumers and producers by keeping energy prices at an all-time low, but OPEC believes the demand and prices will even out over the next year, resulting in the return of higher oil costs.

More information on the power market in Saudi Arabia can be found on PennEnergy's research area.

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