Saudi Arabia, the world’s top oil exporter, plans to raise its crude oil production significantly above 10 million barrels a day (b/d) in April, after the collapse of OPEC’s supply-cut agreement with Russia, two sources told Reuters on Sunday.
State oil giant Aramco will boost its crude output after the current deal to curb production between OPEC and Russia – together known as OPEC+ – expires at the end of March, the sources with knowledge of the matter said.
The collapse of talks to extend the deal on Friday sent oil prices plunging on speculation Saudi Arabia is scrapping a strategy of supporting prices in favour of a grab for market share, reminiscent of a drive in 2014 that caused crude prices to slump around two-thirds in value.
Oil futures dropped more than 20% on Sunday to their lowest since 2016 after Saudi Arabia slashed its official selling price (OSP), signalling the start of a price war.
The sources said April’s production would be significantly higher than 10 million b/d, possibly closer to 11 million b/d. In the past couple of months, Saudi Arabia has been pumping 9.7 million b/d.
Aramco should maximize its output and sell more crude to protect its market share, the sources said, speaking on condition of anonymity due to the sensitivity of the matter.
Saudi Arabia has an oil output capacity of 12 million b/d, giving it the ability to swiftly increase production.
A three-year pact between OPEC and Russia ended in acrimony on Friday after Moscow refused to support deeper production cuts to support prices hit by the coronavirus outbreak. OPEC responded by removing all limits on its own output.
OPEC+ has been effectively cutting production by 2.1 million b/d, as Saudi Arabia has been reducing its own output by more than agreed.
Russia’s poor compliance with the output cuts has been frustrating Riyadh, OPEC sources said.
“The kingdom is not at war with anyone, but it is pursuing its own interest. Once the deal expires, everyone will raise production,” the second source said.
After marathon talks at the OPEC headquarters in Vienna on Friday, Russian Energy Minister Alexander Novak said that from April 1 neither OPEC nor non-OPEC countries had any restrictions on production.
Other OPEC producers, such as Iraq, Kuwait and the United Arab Emirates, will likely follow Saudi Arabia’s move on Saturday with steep cuts to their own oil prices for April.
“You have to follow the [Aramco] OSP cut, otherwise you die in the market,” one oil industry source at a key OPEC producer said.