Saudi Arabia may pump more oil next month but this does not necessarily mean it will raise exports as well, Reuters reports, citing sources familiar with Riyadh’s plans.
The additional production, the sources said, will likely be used for power generation in the Kingdom.
This may disappoint Washington as President Trump has urged Saudi Arabia to step up production to avoid a price spike now that the Iranian sanction waivers to eight large oil importers have ended.
So far the market’s reaction to the end of the waivers has been moderate, not least because of assurances from the Saudi side that it had the capacity and willingness to reverse the production cuts agreed in December. It is here that U.S. and Saudi interests in oil diverge.
“The Saudis want oil prices to stay at current levels at least for a month or two. They don’t want to raise their production above the 10.3 million bpd, because they are part of the OPEC+ pact, but they are also being pressured by the U.S. to increase their output,” one of the Reuters sources said.
This suggests that despite the assurances given to the U.S., Riyadh is careful to not anger its OPEC co-members or Russia, which many see as the decisive factor in the OPEC+ agreement. Russia has signaled more than once it would rather have lower prices but higher production, so it is especially important for Riyadh to keep Moscow on board with the cuts.
The need for higher prices for OPEC’s largest producer stems from an ambitious economic diversification program that requires hefty investments. Also, Saudi Arabia is still in red territory budget-wise, with the gap for this year seen at 4.2 percent of GDP. While this is in no way critical, plugging the gap is important for the Kingdom.