Saudi Arabia’s Oil Minister Ali al-Naimi said that oil production had been cut in March by 800,000 barrels per day because of an oversupply in the market.
The message from the kingdom suggests that the Organization of the Petroleum Exporting Countries (OPEC) will not move to counter the skyrocketing price of oil, which rose to a 30-month high of $127 a barrel this month following unrest in Libya and the Middle East.
Kuwait and the United Arab Emirates backed Saudi Arabia’s concerns that the global oil market was flooded and said the surging price of oil was out of OPEC’s control.
The support for Naimi’s statement is a clear signal that OPEC does not believe they need to pump more oil despite dramatically reduced output in Libya and the predicted rise in demand from Japan as it recovers from the devastation of the earthquake and tsunami that hit in March.
Close to 2008 Record Highs
Analysts predict that if OPEC does not increase supply, demand will eventually have to come down, and this will only happen when the price once again reaches the record highs of 2008, where it peaked at $145 a barrel.
The International Energy Agency warns that the spike in crude oil prices could trigger another recession.
In light of the unrest in Libya and the Middle East, Saudi Arabia and other oil producers in the region are wary of political instability and prefer to take the cautious road to avoid any chance of a sharp drop in oil prices.
Key Statistics – Oil Production in Saudi Arabia
- Saudi Arabia is the world's largest oil exporter, with the capacity to pump 12.5 million barrels per day.
- Saudi Arabia lowered daily production to 8.3 million barrels in March 2011; the kingdom was producing over 9 million in February 2011.
- Saudi Arabia’s onshore oil and gas production increased at a compound annual growth rate (CAGR) of 0.9% from 2000 to 2009. Production should grow at a CAGR of 2% between 2009 and 2030. (source: Datamonitor)