Oil rose yesterday after dropping the most in a month as Saudi Arabia said it will not boost output to capacity and flood a market that is contending with a global inventory overhang of crude and fuel supplies.
Brent crude for November added 31 cents, or 0.6 per cent, to US$47.20. The benchmark later declined to $46.31 after US data showed inventories at their highest in 20 years.
“The surplus is still there and that’s enough to keep the price from sustaining any strong rally,” said David Lennox, a resources analyst at Fat Prophets in Sydney.
“We have the Opec talks at the end of September and we’re going to get a lot of speculation-driven volatility leading into that.”
The world’s biggest oil exporter is not concerned about global demand, despite a drop in prices and a slower economy, Khalid Al Falih, the energy minister, said in an interview with Al Arabiya television, as Opec members plan to meet next month to discuss ways to stabilise crude prices.
The country is able to pump as much as 12.5 million barrels per day (bpd) of oil, he said in comments broadcast during an official visit to buyers in Asia, its biggest market, including China.
“The market is now saturated with stored crude at beyond usual levels and we don’t see in the near future a need for the kingdom to reach its maximum capacity,” Mr Al Falih said.
Demand in China is “very healthy” and consumption in India is “very good”, he said.
Saudi domestic use is rising due to two new refineries in Yanbu and Jubail, which have raised consumption by a combined 800,000 bpd, Mr Al Falih said.
Saudi Arabia is producing near record levels as it tries to preserve market share in the face of a worldwide glut. Increased oil supply, including from United States shale drillers, triggered a drop in prices of more than 50 per cent from their 2014 peak. Saudi Arabia plans to hold informal talks on stabilising prices with other Opec members in Algeria this month.
Mr Al Falih’s comments show that “Saudi Arabia is not interested for the time being in coming to terms with the impact of low oil prices on producers’ economies”, said Abdulsamad Al Awadhi, a London-based analyst who served as Kuwait’s representative to Opec from 1980 to 2001. “To state that as long as we have requests from customers for crude we will meet them at any price shows a total disregard for others.”
“There is no price war,” Mr Al Falih said. Saudi Arabia isn’t threatened by competition in China, the world’s largest energy consumer, and finds it “normal” for producers, including neighbouring Russia, to try to maximise their sales there, he said.
Alexander Novak, Russia’s energy minister, said yesterday it might be worth more actively discussing restricting output if oil prices fell below $50 per barrel. “In my view, current prices at around $50 are normal prices. If prices fall, we can engage more actively in this issue,” Mr Novak said in response to a question whether he thought that output restrictions were expedient.
Opec’s decision to hold talks on prices during an industry conference in Algiers has fed speculation that the group might revive an effort with non-members such as Russia to cap output.
Venezuela, one of the group’s members hit hardest by cheaper crude, has called for collective action to support prices. A previous attempt to freeze production collapsed in April amid political tensions between Saudi Arabia and Iran.
The kingdom pumped 10.43 million bpd in July compared with a record 10.57 million bpd in the same month last year.
“Saudi Arabia will remain flexible in its petroleum policy,” Mr Al Falih said. “We will meet demand if it rises as was the case for this year and last year.”
Saudi Arabian Oil Company, known as Aramco, is negotiating for crude storage projects to help China import more Saudi oil, Mr Al Falih said. It’s also pursuing refinery ventures in China valued at more than $20 billion, he said. Aramco is in advanced talks with China National Petroleum for two refineries in Yunnan province and hopes to reach an agreement this year, he said.
Aramco also has a project with China Petroleum and Chemical, known as Sinopec, for a refinery in Qingdao, he said.
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