Saudi Arabia could cut oil production next year to below 10 million barrels a-day (b/d) as it reduces its output together with other oil producers in an attempt to re-balance the oil market.

 “In my role as the Saudi Energy Minister, I can tell you with extreme certainty, absolute certainty, that effective January 1 we are going to cut, and cut substantially to be below the level we have committed to on November 30,”  said Khalid al-Falih, Saudi Arabia’s Minister of Energy, Industry and Mineral Resources, speaking at a press conference in Vienna on 10 December after concluding the framework agreement for Opec and non-Opec countries to cut oil production.

As part of the Opec production cut deal agreed in Vienna on 30 November, Saudi Arabia committed to cut production from 1 January 2017 by about 4.5 per cent or 486,000 b/d, giving the kingdom 10.058 million b/d of production. “We will always keep that ceiling but there is no guarantee that we will not go below the ceiling as a result of market fluctuations. But we will not go above the ceiling for as long as we are party  to this agreement which runs for six months,” said Al-Falih.

Saudi Oil Production 2016

Saudi Oil Production 2016

The cuts to production could mean that Saudi Arabia produces less than 10 million b/d. “We may [go below 10 million b/d of production]. We are not going to sell more than our customers demand and there is no guarantee that customer demand will dip,” said Al-Falih. “Also if the markets flip into backwardation there may be a  lot of draw down of inventories and customers may start using more of that feedstock from inventories rather than demanding fresh production. Saudi Arabia does not load a single cargo unless it has been requested by a customer based on a pre-announced price based on a long term contract.”

Non-Opec oil producers has agreed with Opec to cut production by about 600,000 barrels a-day from 1 January. The agreement, which is the first between Opec and non-Opec nations in 15 years, follows the deal announced on 30 November by Opec members to cut production by 1.2 b/d from 1 January 2017. 

The agreement between Opec and several non-Opec oil exporting countries was widely expected and Russia had already agreed to cut production by 300,000 b/d. The new Opec ceiling will 32.5m b/d from January.