Saudi Arabia, the world's top crude exporter, said on Tuesday it was prepared to use its spare production capacity, estimated at two million barrels, to balance the global oil market.
"The kingdom is prepared to utilise its spare production capacity when necessary to deal with any future changes in the levels of supply and demand," a cabinet statement said following a meeting chaired by King Salman.
The statement said the kingdom will coordinate with other producers.
Saudi Arabia, which has been pumping about 10 million barrels per day, holds the largest spare capacity in the world and is the only country that can add substantial supply to the market.
The announcement comes after US President Donald Trump said on Saturday that King Salman had agreed to his request to ramp up oil production.
It also comes more than a week after OPEC and non-OPEC producers, including the world's top producer Russia, already announced an output rise.
After reducing production by more than 1.8 million barrels daily since January last year to drain a global glut, the producers decided in Vienna on June 23 to reverse course.
They agreed to bring down over compliance with the cuts, resulting in an output increase of one million barrels a day, according to the Saudi energy ministry.
The move coincides with US plans to reimpose economic sanctions on OPEC member Iran, including halting oil exports.
Iranian President Hassan Rouhani on Tuesday decried the US plan as a "fantasy".
The Kingdom is OPEC's (Organisation of Petroleum Exporting Countries) biggest member and analysts say raising output will be difficult.
“We will be in unchartered territory. While Saudi Arabia has the capacity, in theory, it takes time and money to bring these barrels online, possibly up to one year," Chief Oil Analyst of Energy Aspects Amrita Sen said.
Donald Trump (R) shakes hands with Saudi Arabia's Crown Prince Mohammed bin Salman. Source: Getty
US President Donald Trump (center R) holds a lunch meeting with Saudi Arabia's Crown Prince Mohammed bin Salman (center L), and members of his delegation. Source: Getty
“The Saudis do not have two million bpd (barrels per day) of spare capacity as it would imply production of 12 million bpd. They can likely produce a maximum of 11 million and even that will be running their system at stress levels,” Head of global oil analytics for S&P Global Gary Ross said.
Commodity analyst at UBS Giovanni Staunovo said price would be a concern.
“Prices are likely to become more volatile over the coming months, caught between two narratives: Oversupply concerns and dwindling spare capacity/oil market tightness concerns," he said.
- Additional reporting Reuters.
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