Saudi Arabia has potential to raise oil output

Oil&Gas Materials 23 February 2016 18:10 (UTC +04:00)

Baku, Azerbaijan, Feb. 23

By Aygun Badalova - Trend:

Without the agreement from Iran, the prospects for the deal on oil output freeze between Russia, Saidi Arabia, Venezuela and Qatar look precarious in the coming quarters, analysts of the US JP Morgan bank believe.

Analysts lifted their expectation for Iranian production to 3.5 million barrels per day by the fourth quarter of 2016 from 3.2 million barrels per day previously.

"The increase in production from Iran now looks more likely to occur in the coming months, with additional supplies from the Yadavaran, South and North Azadegan fields starting sooner than we have previously assumed," analysts said in their monthly oil market report, obtained by Trend.

On Feb. 16, Russia, Saudi Arabia, Venezuela and Qatar agreed to keep oil production at the January levels if it also suits other oil producers.

Later, the Venezuelan Oil Minister said that the ministers of Ecuador, Algeria, Nigeria and Oman support the decision on oil output freeze. Kuwait also agrees to join the agreement between Russia and three OPEC countries.

Meanwhile Iran's OPEC envoy Mehdi Asali said that the country would continue increasing crude output until it reached levels achieved before the imposition of international sanctions. However the negotiations with Iran on the oil production level have not been completed yet.

JP Morgan analysts stressed that three of the countries that have reached a deal, are at maximum oil production rates.

"Consequently, these producers have agreed to restrain output to a level that is not easily achievable without significant additional investment - which appears unlikely in the current and prospective pricing environment," analysts said.

Only Saudi Arabia has the potential to materially raise output from current levels, analysts believe.

Analysts expect Saudi Arabia's oil production at 10.2 million barrels per day in 2016, but assume that there is an equal and offsetting decline in Saudi crude burn, with increased natural gas production used to enable exports to be sustained at current levels.

"This is consistent with Saudi Arabia's strategy to defend market share, and meet its pledge to cap, but not cut output from its January 2016 level, rather than support prices," analysts said.

Oil production in Saudi Arabia amounted to 10.23 million barrels per day in January, according to the latest report of OPEC. Venezuela and Gatar produced last month 2.558 million barrels pre day and 637,000 barrels per day respectively. Oil production in Russia reached the new record at 10.91 million barrels per day in Dec. 2015, said the OPEC message.

Iran produced 2.925 million barrels per day in January compared to 2.887 million barrels per day in December, 2015.