Aramco’s April Production To Mean No Saudi Spare Capacity

Last week, oil prices plummeted after news came that Saudi Arabia was going to increase the supply of oil it contributes to the global market to an astounding 12.3 million barrels per day. We also learned that Saudi Aramco would sell that oil to certain markets, particularly Asia, at an extreme discount. The problem with Saudi Arabia supplying so much oil is that it means the kingdom will negate its long-valued spare capacity, potentially placing itself at a new strategic disadvantage economically and geopolitically.

Saudi Arabia currently has a maximum sustained capacity (MSC) of 12 million barrels per day, meaning the law requires Aramco to be able to produce that much within three months. Once Saudi Arabia announced its intention to supply 12.3 million barrels per day, it was clear that Saudi Arabia would have very little or no spare capacity left. After this issue was raised, the energy ministry announced last week that the kingdom would raise its MSC to 13 million barrels per day to ensure some spare capacity.

On Monday, the CEO of Aramco, Amin Nasser, spoke on yesterday’s earnings call and let it be known that Saudi Arabia would actually have no spare capacity for some time. Of the 12.3 million barrel per day supply, Aramco will draw 300,000 from storage or “inventory,” as Aramco calls it. 12 million barrels will come from oil and oil equivalent production each day. That would mean that Saudi Arabia would be producing at its capacity until such time as the capacity is raised to 13. 

The important question is: when can Aramco get its capacity up to 13 million bpd? One of the analysts on the call asked this, and Nasser could only say that the company was trying to get there with haste. It seems that it could be a while.

This means that, starting in April, and for some unknown period thereafter, Aramco and Saudi Arabia will have essentially no spare capacity. Furthermore, Aramco will be drawing from its storage every day, thus dipping into the strategic benefit of storage, as well. This is a major change for a country that has prided itself on its ability to raise production and has benefited from this strategic tool, both economically and geopolitically. Come April, Saudi Arabia won’t be able to fill supply holes. This means Saudi Arabia will not be able to overcome a production disruption like it did in September when it was back to full production levels in only 11 days after a significant attack by Iran on two oil installations.

On the other hand, this lack of capacity could provide Saudi Arabia with an easy out if it wants to abandon its overproduction policy and quickly raise the price of oil. Aramco could decide that maintenance is needed on one or more major facilities, shutting production temporarily. This would work to push up prices quickly, because no one would fill the missing supply. It would be uncharacteristic for Aramco to do something so cunning and duplicitous, but this is the one strategic advantage of losing spare capacity.

Speak Your Mind

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Get in Touch

350FansLike
100FollowersFollow
281FollowersFollow
150FollowersFollow

Recommend for You

Oh hi there 👋
It’s nice to meet you.

Subscribe and receive our weekly newsletter packed with awesome articles that really matters to you!

We don’t spam! Read our privacy policy for more info.

You might also like

5 Reasons You Didn’t Get A Stimulus Check

Getty Getty There are a least...

Parliament passes bill to bring cooperative banks under RBI’s...

NEW DELHI: Parliament on Tuesday passed amendments to the Banking Regulation Act to bring...

Delta and pilot union reach preliminary deal to avoid...

A pilot talks on a mobile device near a Delta Air Lines gate at...

Council Post: The Transformation Of Consumer Behaviors In The...

Remember when we used to spend hours browsing in a book store...