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Saudi Arabia could simply “flood” the market with an influx of supply that would drive down prices, one expert said.
This comes as OPEC concluded its last assembly in which members pledged to voluntarily cut production in compliance with companies’ commitments.
Meanwhile, U. S. crude has soared this year, hitting new records.
Saudi Arabia could simply flood the market with more oil reserves, reversing its production curbs, as the world’s most sensible crude exporter tries to recover prices, an energy market veteran said.
This comes as OPEC concluded its last assembly in which members pledged to voluntarily cut production by complying with companies’ commitments, causing a drop in oil prices.
“We’ve pretty much said Saudi Arabia just get this out,” Sankey Research’s Paul Sankey told CNBC on Friday.
He estimated that Saudi Arabia had the capacity to increase production by an additional 2. 5 million barrels per day.
For now, OPEC’s undisputed leader is to prop up crude oil by pumping less. On Thursday, it extended its 1 million-barrel cut in line with the first-quarter daily cut.
But Sankey noted that Saudi Arabia surprised markets in 2014, when it also tried to empty the market by causing crude costs to fall from a peak of around $110 a barrel to $50.
Falling costs eventually forced higher-cost manufacturers out of the market, as pumping was no longer cost-effective. Meanwhile, Saudi Arabia continued to pump as it was better able to cope with falling costs. As the materials of its rivals disappeared, the kingdom was able to regain ground on costs.
Then, as now, the rising source of U. S. oil was a headache for OPEC and Saudi Arabia. And Sankey said Friday that the oil cartel has “an enormous challenge with U. S. production levels. “
In fact, U. S. crude oil production has risen sharply this year, with monthly output hitting a record high in September at more than 13. 2 million barrels per day, according to data from the Energy Information Administration.
Read the article on Business Insider