Saudi Arabia has revved up crude production to its highest rate on record, feeding unexpectedly strong demand from foreign refiners and increased capacity at home.
Oil Minister Ali al-Naimi told reporters late on Tuesday that the Kingdom produced some 10.3 million barrels per day (bpd) of crude in March, a figure that would eclipse its previous recent peak of 10.2 million bpd in August 2013, according to records going back to the early 1980s.
Just a few weeks earlier, Naimi had pegged production at around 10 million bdp, some 350,000 bpd above what Saudi Arabia said it pumped in February. The Kingdom produces more than 10 per cent of the world’s crude.
Naimi did not say why production had increased last month. He said in the speech in Riyadh that the Kingdom’s output would likely remain around 10 million bpd.
The increase in output reaffirms Saudi Arabia’s vow not to cede market share to higher-cost producers, such as U.S. shale drillers or Russian giants. The Kingdom and others in the Organization of Petroleum Exporting Countries (OPEC) have refused to cut production to shore up fallen oil prices.
It also highlights the surprising strength of end-user fuel demand, which has helped lift global refinery profit margins to their highest levels in years.
Oil prices rallied on Tuesday on separate Naimi comments about working with other big producers to stabilize the market – something most analysts see as unlikely in the near future – but it was the production figure that raised eyebrows.
“While April and May could see a small pullback, overall it is clear that Saudi Arabia has reacted to stronger demand for their crude, despite being in an oversupplied market,” Energy Aspects chief analyst Amrita Sen wrote in a note.
Demand was stoked in part by deep discounts on Saudi exports in March as the Kingdom offered Asian customers the deepest discounts on its flagship Arab Light crude in at least 12 years, according to Reuters data. Saudi Aramco has raised its prices for the following two months, putting May at the highest level since last year.
U.S. imports of Saudi crude rose to more than 950,000 bpd over the four weeks to March 27, the highest since last September, U.S. data show.
The Saudi production figure also likely reflects some additional domestic refinery demand.
The 400,000 bpd Yanbu Aramco Sinopec Refining Co (Yasref) refinery, a joint venture between state oil firm Saudi Aramco and China’s Sinopec, has been steadily ramping up production this year and was due to reach full capacity by mid-February. A venture with Total started up in late 2013.
Saudi refineries ran a record 2.2 million bpd of crude in December, up from around 1.5 million bpd two years earlier, according to the Joint Oil Data Initiative database.
“Production is always going to grab the headlines, but exports will be more important than ever to focus on,” said Mike Wittner, Global Head of Oil Research at Societe Generale.
Saudi Arabia also burns more crude to generate power heading into the summer months. Direct use of crude last year rose from around 350,000 bpd in March to nearly 900,000 bpd in July, according to the JODI data.