A decision by oil heavyweights Saudi Arabia and the UAE to lift their crude production to offset lower supply by Iran and other countries in the region has helped prevented a sharp rise in oil prices, a veteran Arab oil analyst says.
Oil prices had reached a peak of $128 a barrel and could swell further before they started to slide over the past few weeks following the increase in output by Saudi Arabia and the UAE as well as the recovery in Libya’s supplies, said Salid Khadduri, a former information director at the Kuwaiti-based Organization of Arab Petroleum Exporting Countries (OAPEC).
He said the UAE had boosted output to its highest level of nearly 2.7 million barrels per day while Saudi Arabia’s crude production also climbed to an all time high of close to 10 million bpd following the disruption of Iran’s oil exports because of the Western sanctions and lower output by some Arab nations as a result of the political turbulence sweeping the region.
Another factor that has eased the supply of crude oil in global markets has been the increase in Libyan oil production by the end of the first quarter to about 1.5 million bpd, compared to 1.6 million bpd before the revolution, said Khadduri, a former editor of the Nicosia-based Middle East Economic Survey.
He said Iraqi oil exports also rose significantly as the country started exporting from newly-constructed floating platforms.“The increase in supplies from Gulf oil producers has served two main objectives. It provided for countries that used to import Iranian oil and has curbed price rises as Brent crude hit $128 a barrel and was on its way to reach much higher levels, because of the fear of an imminent war as well as speculation,” Khadduri wrote in an article published by the Abu Dhabi-based Emirates Centre for Strategic Studies and Research (ECSSR). “The first quarter of 2012 witnessed a significant change in oil markets.
Despite the challenges posed by sanctions on Iran, the pressure on oil supplies from some Arab countries and the increase in global demand for oil, OPEC’s production increased to about 31.5–32 million bpd, i.e. above the organization’s ceiling of 30 million bpd by 1.5–2 million bpd, which reassured markets about supply availability despite the loss of one million bpd of Iranian oil.”Khadduri, an Iraqi, cited a recent report by the International Energy Agency showing that global oil supply rose by 600,000 bpd to 91 million bpd in April and was now 3.9 million bpd more on a year-on-year basis, with 90 percent of the increase coming from OPEC.He noted that Saudi Arabia, the world’s oil basin, has always been clear about its intention to provide the markets with crude oil whenever they need to fill in any supply gap.
As a policy, he added, Saudi Arabia is committed to achieving stability in global energy markets and preventing sharp, abnormal price hikes. “This has been the Saudi policy for decades and it has built up a spare capacity to avert the risk of any sudden drop in global oil supply.”Khadduri said the increase in crude oil supply and the resumption of talks between Iran and the big powers on its nuclear programme calmed the global oil markets, adding that prices of Brent crude fell from $128 to about $110 – $113. “Indeed, this trend is in line with the approach of OPEC’s major producing countries, which constantly stress that their goal is to reduce price levels to around $100 a barrel, considering this level as reasonable to both producers and consumers,” said Khadduri, author of several books on the oil market.“As for the future, the picture is still unclear.
Uncertainty about Iranian supplies, the intractable economic crisis in the eurozone, unplanned stoppage in supply from non-OPEC countries and other factors make it difficult for analysts to predict oil market situation even in the near term.”