Gulf oil producers push for more output

08/06/2011 00:00 AST

UAE Oil Minister Mohammed bin Dhaen Al-Hamli said on Tuesday that the oil market faces tight supply in the second half of the year as OPEC gets ready for a meeting in Vienna on Wednesday for an output decision hotly awaited in global financial markets.

“We have to look beyond the second quarter, the market will be tight,” Al-Hamli was quoted by Reuters as saying.

His remarks came as a senior Gulf industry official familiar with Saudi oil policy said Saudi Arabia expects to lift production by more than 500,000 barrels a day in June to its highest for three years.

Worried about the impact on economic growth of inflated energy costs, Saudi Arabia is trying to keep a lid on prices now at $114 a barrel for benchmark Brent crude.

The Gulf official said Saudi production was likely to average 9.5-9.7 million bpd in June. A Reuters estimate put output at 8.95 million bpd in May.

Saudi output was last as high in the middle of 2008 after oil prices set a record $147 a barrel, shortly before the recession sent prices crashing.

Commenting on the Kingdom’s production plan, John Sfakianakis, chief economist at Banque Saudi Fransi, said an oil output increase can create macroeconomic benefits as it could lead to higher revenues, as long as prices are not severely depressed, and has an impact on real GDP improvements and as long the added increase is exported and not used for pure domestic consumption.

He said: “In the event of an output increase by Saudi Arabia the extra oil could lead to higher exports but also to higher domestic consumption given seasonal summer demand. It is expected this year’s energy demand will reach new highs as Ramadan will begin in the summer month of August, compelling most Saudis to remain home-bound.”

Sfakianakis said an output increase could lead to extra supply of oil depending on the increase, which could help put some downward pressure on oil prices although there are many determinants impacting oil prices such as the value of the dollar as well as geo-political risk and market speculation.

“For sure, an oil price decline in the $80s range is good for the global economy compared to Brent above $110 per barrel,” he added.

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Arab News