Saudi Arabia seen to be ramping up output after freeze in volumes is rejected
The breakdown of oil exporter talks in Doha has left the worlds largest oil producers free to ramp up output to defend global market share.
Saudi Arabia pulled out a potential agreement to freeze global production due to the absence of Iran, which is attempting to boost output back to pre-sanctions levels.
With cooperation off the agenda, the battle for market share will intensify between Iran and Saudi Arabia in a situation that could see the two countries geopolitical rivalry spill over into the oil sector.
Analysts at US bank Citigroup said in late April in a research note that the biggest bear risk to the oil market right now is Saudi Arabia ramping up oil production in tandem as Iran brings volumes to the global picture.
Citigroup said it is likely Saudi Arabia is targeting a 500,000 barrel-a-day (b/d) increase in volumes to push its production up towards 11 million b/d. Saudi Arabia hit a record production level of 10.56 million b/d in June 2015, but produced an average for 2016 of 10.12 million b/d in of March, according to oil producers group Opec estimates.
Ahead of the meeting, Deputy Crown Prince Mohammed bin Salman al-Saud said the kingdom could raise crude output by more than 1 million b/d straight away if there is demand for it.
Meanwhile, Irans deputy oil minister said the country is on target to increase its oil production to pre-sanctions levels in the next two months. Iran is estimated to have already added close to 500,000 b/d since January, according to Opec estimates. Neighbouring Iraq boosted production to record levels in March ahead of the Doha talks.
Despite the concerns over increasing oil supply from the Middle Easts two biggest economies, Brent hit a 2016 high of close to $46 a barrel on 26 April on the back of a report that US stockpiles were lower than previously expected.
Oil traders will be watching the production levels of Saudi Arabia, Iran and Iraq eagerly over the coming weeks. With little chance of an Opec production freeze agreement when the organisation meets in June, any signs of a ramp-up in output could add to global oversupply and weigh on prices.
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