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Page added on January 11, 2012

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Saudi oil output nearing capacity limit


* Saudi Arabia now pumping just under 10 mln bpd

* On paper should be able to reach 12.5 mln bpd

* Riyadh traditionally sets aside 1.5 mln bpd

By Amena Bakr and Reem Shamseddine

DUBAI/RIYADH, Jan 10 (Reuters) – Top oil exporter Saudi Arabia is nearing its comfortable operational production limits and may struggle to do much to make up for shortages that arise from new sanctions imposed on Iran by the West, Gulf-based sources said.

The kingdom, now pumping just under record rates of 10 million barrels per day, has poured billions of dollars into its vast oil fields, which on paper should ensure it has the ability to ramp up to 12.5 million bpd.

Long-standing oil policy by Riyadh, the heavyweight in the Organization of the Petroleum Exporting Countries (OPEC), sets aside some 1.5 million bpd as protective spare capacity.

But industry sources said pumping anywhere near the declared production capacity might involve extracting heavy crudes the market might not want. It would also be difficult to sustain higher rates for lengthy periods.

“There is very little unused capacity in the Gulf,” said an oil official in the region. “Saudi Arabia could comfortably manage an extra 500,000 barrels a day or so and, if pushed, could go up to 11 million (barrels a day).”

A steady rate beyond 10 million bpd would offer immediate relief to world oil markets, but it would take the kingdom’s production to untested levels.

Saudi officials are confident, however, of achieving higher flows.

“Saudi Arabia can easily make 1 million to 1.5 million (barrels per day) available,” a Saudi source said about output beyond current volumes.

Since June of last year, Saudi Arabia and its Gulf allies Kuwait and the United Arab Emirates have been cranking oil out after failing to convince Iran and other OPEC members to agree a coordinated increase to cover the supply disruption from Libya’s civil war.

The trio has kept up the higher pace, despite the return of Libyan crude, to supply rising demand from Asia and in effort to bring oil prices below $100 a barrel to help nurture global economic growth. Increased deliveries have left Kuwait and the United Arab Emirates producing nearly flat out.

That will make it a stretch to fill a sizeable gap left by any punitive cuts in Iran’s oil exports of about 2.5 million bpd.

After spending huge amounts on fortifying their production, the Gulf countries are now reluctant to push output to the very brink and leave them bereft of a supply cushion.


The United States and its allies in Europe and elsewhere are trying to put pressure on Iran to curb its nuclear programme, worried that Tehran is attempting to develop its own atom bomb.

Iranian oil officials said shipments from the Islamic Republic are continuing as normal. There are, however, reports that some traditional buyers of Iranian crude, such as China, may be looking elsewhere. This may be part of a negotiating ploy over contract renewals.

The European Union has brought forward a ministerial meeting that is likely to match new U.S. measures to tighten the financial screws on Tehran. At stake are roughly 500,000 bpd of Iranian exports to EU members.

The U.S. has long embargoed Iranian crude, but the new sanctions target institutions that deal with Iran’s central bank.

Asia’s big consumers of Iran’s oil – Japan, China and India – are already taking precautions. Tokyo has asked Saudi Arabia and the UAE to help it to plug any gap.

And China’s Premier Wen Jiabao is set to visit Saudi, the UAE and Qatar amid signs that Beijing wants to expand its options as the U.S. ratchets up measures against Iran.

Despite the diplomatic efforts, there have been no hard requests from buyers.

“So far, there are no extra orders (from buyers) that would require Saudi to increase production,” a Gulf industry source told Reuters. He repeated Riyadh’s vow to meet any extra demand.


5 Comments on "Saudi oil output nearing capacity limit"

  1. BillT on Wed, 11th Jan 2012 3:26 pm 

    The Saudis are blowin’ smoke, not pumping extra oil. The ‘extra comes from their reserves and would not last long. That is why the dance to make the world think they still have excess capacity. What they may have is heavy oil that sells cheap. Not sweet crude.

  2. Kenz300 on Wed, 11th Jan 2012 5:09 pm 

    An exercise every individual, business and politician should think about is how a doubling in the price of oil would affect them. If gas went from $3.50 to $7.00 a gallon in the US it would have a dramatic effect on behaviors. Too few people have thought about it or are preparing for a world of high energy prices. The Saudi’s are no longer in a position to save the world from high oil prices.

  3. dsula on Wed, 11th Jan 2012 7:03 pm 

    kenz300: tripling from $1 to $3 didn’t have a dramatic effect. Still tons of SUV and heavy trucks on the road. What makes you think a doubling from $3.5 to $7 has a ‘dramatic’ effect?

  4. Stephen on Wed, 11th Jan 2012 8:32 pm 

    Maybe Saudi is peaking too!

  5. BillT on Thu, 12th Jan 2012 1:03 am 

    dsula, it did have an effect. There will always be stupid people who buy what they are told to buy. Then there are also those millions who still make six figure or more incomes and don’t notice the price of gas. But, more and more Americans DO notice and are cutting back. $7+ gas would bring the US economy to it’s knees f it lasted more than a few weeks.

    And, yes, all indications have pointed to the Saudi oil fields having peaked.

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