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Saudi could boost output to 2m, but not today.

Summary: Prices to remain at elevated levels due to supply concerns

Fareed Rahman, Senior Reporter

Abu Dhabi: It would be difficult for Saudi Arabia -- as suggested in a tweet by US President Donald Trump on Saturday -- to immediately pump an additional two million barrels of oil per day, and only after additional investments in its oil sectors, according to analysts.

Trump said he complained to Saudi Arabia's King Salman Bin Abdul Aziz Al Saud that prices are too high and asked Saudi Arabia to increase oil production to two million barrels to make up the difference. According to Saudi's news agency, King Salman told Trump on Saturday that the kingdom maintains a two million barrels per day of spare capacity, which it will prudently use if and when necessary to ensure market balance and stability, but they did not say they would increase production.

"It's difficult to bring in two million barrels of oil per day on-stream immediately. The potential is there but it is not something that it can be done tomorrow. It takes a little bit of time, it takes a lot of investment and a lot of preparation," Jaafar Al Taie, managing director of Manaar Energy in Abu Dhabi, told Gulf News.

According to him, Saudi Arabia can increase production by 300,000 barrels per day (bpd) within three months' time and 500,000 bpd with in a six months' and possibly one million within a year, depending on investment and market conditions.

The UAE and Kuwait too can bring in additional capacity of 100,000 to 300,000 bpd to the market within the next six months, he said adding that Iraq also has the potential to increase production but the real capacity is with Saudi Arabia.

"What the Saudi king is talking about is the nominal capacity and not the real capacity which is half of that now. They have the capacity of two million barrels per day capacity in the long run."

"Aramco has a very good view of the market and the market is quite complex. Trump doesn't have a deep understanding of the oil market. The statements are for the US elections to bring petrol prices down."

Even if the kingdom could increase production that quickly, Opec is trying to keep oil prices at a reasonable levels within the range of $60 to $80 per barrel to benefit their economies and also to see that global oil demand remains healthy. Just last week Opec agreed to increase production by 1 million barrels a day, which will add about 700,000 barrels a day of oil to the market in the second half of the year.

Edward Bell, commodity analyst from Emirates NBD, also said there is a lot of uncertainty about the 2 million barrels per day of increase in capacity from the May levels of about ten million barrels.

"Saudi Arabia was committed to stable oil markets, which in their view is an increase of production to avoid prices spiking up to levels that are too high. Whether or not, it is an increase of same size that trump has tweeted about that is highly uncertain."

"If they were to raise production by two million barrels per day, that means you will be using up all of Saudi Arabia's capacity for oil production and it's never been tested to produce at that level. And it's uncertain how quickly they could get production up to that level and how well they can maintain that," he said, adding that prices are expected to remain at elevated levels in the coming months due to supply concerns.

Brent, the global benchmark, closed at $79.23 per barrel and US crude West Texas Intermediate at $74.15 on Friday.

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Publication:Gulf News (United Arab Emirates)
Geographic Code:7UNIT
Date:Jul 1, 2018
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