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Page added on July 12, 2018

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S. Arabia will be ‘Reluctant to Exhaust’ its ‘Substantial’ Spare Capacity

Production

Saudi Arabia will be “reluctant to exhaust” its “substantial” spare capacity, according to oil and gas analysts at BMI Research.

“Questions are being asked as to the extent to which Saudi Arabia will increase its production, to offset shortfalls elsewhere in the market,” the analysts said in a report sent to Rigzone.

“We believe that, while a large volume of barrels will be returned over the coming months, likely upwards of 1 million barrels per day, the Kingdom will be reluctant to exhaust its substantial spare capacity,” the analysts added.

In the report, BMI said Saudi Arabia has sufficient capacity to keep the market “comfortably supplied”, but said the benefits of this are outweighed by the costs.

“The Kingdom has reaffirmed that it holds 2 million barrels per day of spare capacity, which implies total capacity of around 12 million barrels per day. Full utilization would be sufficient to keep the markets well-supplied and prices in check,” the analysts said.

“However, bringing all its spare capacity into play would incur a significant cost, while production would take time to bring fully online; increasing crude output from 11 million to 12 million barrels per day would likely take in the order of six to 12 months to fully ramp up,” the analysts added.

BMI added that it was unclear that there will be a market for the additional barrels, and how sustainable that market would be.

“U.S. shale potential is still largely unknown and the outlooks on markets such as Iran, Libya and Venezuela are highly uncertain,” the analysts said.

“An increase in production of this magnitude would wipe out the bulk of remaining spare capacity, globally. Saudi Arabia, and OPEC more broadly, would lose its key lever on the global oil market, which would leave prices heavily exposed in the case of an additional supply shock,” the analysts added.

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3 Comments on "S. Arabia will be ‘Reluctant to Exhaust’ its ‘Substantial’ Spare Capacity"

  1. Duncan Idaho on Thu, 12th Jul 2018 8:25 pm 

    “U.S. shale potential is still largely unknown and the outlooks on markets such as Iran, Libya and Venezuela are highly uncertain,” the analysts said.”

    It is all about the Permian, which they can’t get supply out. The Bakken is still producing, but the well number is huge (Iran produces more with 60 wells than the Bakken does with 2500).
    Things are going to get tight, and soon.

  2. Bloomer on Thu, 12th Jul 2018 11:15 pm 

    The Saudi keep anouncing that they have added oil capacity available, but they have never produced more then 11 million barrels per day. Why are they reluctant to bring spare capacity? Perhaps their oil fields are in decline, and they don’t want to hasten the enviable.

  3. Makati1 on Fri, 13th Jul 2018 6:50 am 

    Oily numbers are all lies today. No one wants to say how little is left. Prices will soon tell the tale. $100/bbl by Christmas?

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