Saudis’ 12 mbd oil output, just a claim: Analyst

SHANA – “The exact number of actual crude oil production capacities and reserves of the long-standing members of OPEC and non-OPEC countries are viewed as top-secret data by those countries. We cannot never be sure about the exact production capacity of Saudi Arabia or Russia.

TEHRAN (Shana) — “The exact number of actual crude oil production capacities and reserves of the long-standing members of OPEC and non-OPEC countries are viewed as top-secret data by those countries. We cannot never be sure about the exact production capacity of Saudi Arabia or Russia. For more than two decades, Saudi Arabia has been claiming it has 12 million barrels per day of production capacity but no one has ever seen such output levels by the kingdom;” these are the remarks of Fereydoun Berkeshly, a senior oil market analyst.

Brent Crude prices ended higher on Friday, July 20, to settle at $72.36 per barrel, up $0.6/b from Thursday and $2.1 higher than Wednesday. Remarks of Saudi Arabia’s OPEC governor, the probability of a US embargo on Russia, increased activities by Chinese refineries, and compensation for the decline in Libyan oil exports by the United States are believed to have supported Brent crude prices in the market. Following the OPEC Joint Ministerial Monitoring Committee (JMMC), Saudi OPEC governor Adeeb Al Aama had said the kingdom did not intend to oversupply the market with its oil and would supply only in accordance with the buyers’ needs. He added that Saudi Arabia’s total supplies to the market were poised to drop by 100,000 bpd in August compared with July.

Fereydoun Berkeshly, currently in Vienna, had an email interview with Shana, in which he said: The global oil market is certainly indebted to OPEC’s services. The Organization of the Petroleum Exporting Countries (OPEC), given its constructive and powerful interaction with market players, has maintained the stability of the global oil market in the toughest circumstances. OPEC owes the lion’s share of its achievements to Iran and Saudi Arabia, which have saved the market from definitive collapse in the most complex conditions.”

An old-time executive of the OPEC affairs department at the Iranian Ministry of Petroleum, Mr. Barkeshly also touched on the US fear of imposing sanctions on Tehran, saying: “The United States did not tap its strategic crude reserves even during George W. Bush’s invasion of Iraq.”

Shana: How do you assess the current oil market conditions?

Up until OPEC’s 174th meeting, as well as the OPEC-non-OPEC Summit on June 23-22, 2018, in Vienna, and even with rational decisions adopted by OPEC oil ministers regarding maintaining the organization’s production ceiling and cutting 1.8 mbd of its oil supply to the market with the aim of depleting oil inventories of major consumers in 2016, the global oil price had gained strength, and was building up mildly, proportionate to the demand and global economic growth. The global oil market had clearly adapted itself to the coordination of OPEC and non-OPEC producers which comprised 24 major and minor producing countries. But, the events that happened shortly after the 174th meeting of OPEC distorted the world market to some extent, in such a manner that Brent crude prices saw a $1.65/b jump.

Shana: Can the oil market do away with Iran?

Before answering this question, I ought to say that President Trump has decided to enforce a ban on Iran’s oil exports as of November 4, but this decision has coincided with the approval of the House of Representatives and the Senate and the inter-parliamentary elections in the US. Given the difficulties that Trump faces domestically, he will most likely lose some of his supporters, even in the Republican front, and, in the best case scenario, may be able to materialize only part of his intentions to put pressure on Iran. Mr. Trump’s bow to Putin in Helsinki, Finland, will reduce the chances of his success in obtaining a majority in the Senate and the House of Representatives, which undoubtedly will limit his pressure on the Islamic Republic of Iran.

But regarding sanctions on Iran’s oil exports, in a sentence, I can say: Iran’s oil is not sanctionable. Although the United States, given its dominance over SWIFT system, can prevent transfer of a portion of Iran’s proceeds from oil sales, as it has already done in the past, we ought to work out a mechanism to bypass these limits. We have so far held promising talks with European countries in this regard.

It should also be added that the National Iranian Oil Company (NIOC)’s marketing system enjoys the best and most powerful oil market experts in the world who have a valuable record to sell Iran’s oil in the most demanding conditions from the time of the imposed war to this day.

Shana: What is the maximum crude volume that producers can supply the market?

The exact number of actual crude oil production capacities and reserves of the long-standing members of OPEC and non-OPEC countries are viewed as top-secret data by those countries. We cannot never be sure about the exact production capacity of Saudi Arabia or Russia. For more than two decades, Saudi Arabia has been claiming it has 12 million barrels per day of production capacity but no one has ever seen such output levels by the kingdom. Even during Saddam Hussein’s attacks on Kuwait which ensued a 6-mbd cut in oil supply to the market, no one saw Saudi Arabia pump 12 mbd. Such displays in international arenas by the kingdom question its ability to produce oil above 10.5 mbd levels. This drives Saudi Arabia to the margin as a main candidate to replace Iran in the market in case the sanctions were imposed by the US. The same is true about Russia. It may decide to supply the market from the oil reserved or produced by Turkmenistan or Kazakhstan. Of course, Saudi Arabia has floating and land oil reserves that can enter the market. I can say that these conventional crude oil producers have more or less reached their maximum production capacity and have no capacity to increase surplus oil.

In total, the 24 signatories of the OPEC pact can add no more than 1 mbd of oil to the market. It should be noted that Venezuela and Libya’s oil production has dropped by more than a million barrels while Nigeria, Angola and Gabon are producing oil with so much trouble.

Shana: What do you estimate will be the demand for oil in the third and fourth quarters of the current year?

The year 2018 has been and will be a great deal for the oil market. Recently, the imposition of US tariffs on imports from China and the European Union and their reciprocal countermeasures against the United States have spelled trouble for the commercial relations between industrialized countries, and therefore no reliable figures can be produced for the growth of the world economy and, consequently, the demand for oil. Therefore, the demand for crude oil will at beast increase by 1.8 to 1.9 mbd.

Shana: How much can OPEC help stabilize the oil market?

The global oil market is certainly indebted to OPEC’s services. OPEC, with its constructive and powerful interaction with market players, has maintained the stability of the global oil market in the toughest circumstances. OPEC owes the lion’s share of its achievements to Iran and Saudi Arabia, which have saved the market from definitive collapse in the most complex conditions.

Shana: The US has announced it would tap its crude oil inventories to supply the market after imposition of sanctions on Iran’s oil exports. How practical is this threat?

Dipping into US strategic oil inventories was first proposed by Henry Kissinger back in 1974 to tackle the Arab oil embargo. It can only be used as a strategy by the US in case of the blocked flow of oil to the US or during war. The United States now has 667 million barrels of strategic reserves, and Trump says it is ready to withdraw at least 25 million barrels from these reserves. This reflects the fear and concern of the US government to impose sanctions on Iran. The US did not tap its crude oil reserves even during George W. Bush’s invasion of Iraq.