Saudi Arabia’s crude oil production
Saudi Arabia is OPEC’s largest oil producer. Saudi Arabia’s crude oil production increased by 60,000 bpd (barrels per day) to 10,120,000 bpd in May—compared to the previous month. The production was near a five-month high. The production also increased by 70,000 bpd or 0.7% from a year ago.
However, Saudi Arabia’s production has declined by 510,000 bpd or 4.8% from the record high hit in July 2016. The production declined due to current self-imposed supply cuts.
Brent crude oil prices hit $80.5 per barrel on May 17, which was the highest level since late 2014. Since then, the prices have declined 6.4% due to the expectation of a rise in the crude oil production from Russia and Saudi Arabia.
The iShares US Energy ETF (IYE) has fallen ~4.4% since May 17. The index is composed of US companies in the energy sector. Nabors Industries (NBR), Patterson-UTI Energy (PTEN), Superior Energy Services (SPN), and Concho Resources (CXO) account for ~2.2% of IYE’s holdings. These stocks have declined 26.9%, 25%, 23%, and 16.9%, respectively, since May 17. These stocks were among the top percentage losses in IYE’s portfolio during the same period.
Saudi Arabia and crude oil prices
Brent and US oil prices have risen ~68.1% and ~55% since June 21, 2017, partly due to supply cuts. Saudi Arabia needs higher oil prices because the country’s economy mainly depends on crude oil export revenue. Higher oil prices will be crucial to help transform Saudi Arabia’s economy.
Consequences of higher crude oil prices
Higher crude oil prices in 2018 could increase the US drilling activity and output. Higher US production could increase US crude oil exports. US crude oil exports to Asia have been rising. Asia is a big market for Russia and Saudi Arabia. The rise in US crude oil exports to Asia could dent Saudi Arabia’s market share in Asia. The rise in US oil output and exports could also pressure oil prices.
OPEC’s meeting is scheduled for June 22. On June 14, Russia’s energy minister said that Saudi Arabia and Russia were interested in a gradual exit from ongoing supply cuts. Société Générale expects that Saudi Arabia, the United Arab Emirates, and Kuwait could increase the crude oil production by a combined 500,000 bpd, which could start in July. A large rise in the crude oil production from Saudi Arabia is bearish for oil prices.
Next, we’ll discuss some crude oil price forecasts.