Saudi Arabia’s oil minister struck an upbeat note on oil prices, even though he said the kingdom was pumping crude oil at its highest rate in more than a decade amid a continued worldwide oil glut.
The sanguine tone may be because of the fact that Saudi Arabia is absorbing additional oil output in its own refineries, where it continues to ramp up capacity to meet growing domestic and regional demand.
The UAE also has been absorbing additional crude into its upgraded refinery base in recent months, a fact supported by confirmation from traders in Asia that Abu Dhabi National Oil Company (Adnoc) informed them that it would reduce oil sales of its flagship Murban crude oil next month by as much as 5 per cent, the third month in a row it has reduced sales to the region, according to reports from Singapore.
“The challenge is to restore the supply-demand balance and reach price stability,” Ali Al Naimi, Saudi Arabia’s oil minister, told a conference in Riyadh, according to a Reuters report on Wednesday. “This requires the cooperation of non-Opec major producers, just as it did in the 1998-99 crisis”, but Mr Naimi added, “prices will improve in the near future”.
He said that the kingdom’s oil production in March averaged 10.3 million barrels per day, a surprisingly large increase from the 9.6 million bpd the kingdom had reported to Opec that it produced in the fourth quarter last year and the first two months of this year.
The UAE’s production has also been increasing to meet new domestic refining demand, moving up to nearly 3 million bpd in December through February from below 2.8 million bpd for most of last year.
Refinery capacity in the Arabian Gulf is expected to rise by about 1 million bpd this year, with most of that coming from upgrades at Abu Dhabi’s Ruwais facility and at Saudi Arabia’s Yasref plant, a joint venture with China’s Sinopec, at the port city of Yanbu on the Red Sea.
Yasref reached its full capacity of 400,000 bpd in mid-February and already has exported several cargoes of petrol to buyers, parking it at the UAE’s Fujairah storage hub.
Ruwais’s multi-unit expansion is expected to add petrol and diesel production to meet growing domestic demand, as well as jet fuel production for Abu Dhabi and Dubai airports.
Analysts at Energy Aspects in Dubai said they expected the UAE to absorb the additional petrol production through May before exporting increasing volumes in the second half of the year. When Ruwais reaches full capacity in a couple of months, jet fuel production will be 80 per cent higher, and much of it too will head on to export markets.
The additional production from Saudi and UAE refineries, as well as meeting domestic demand, is covering shortfalls in the region caused by conflict-related disruptions that have knocked out refineries such as Baiji, north of Baghdad, and Yemen’s main facility.
Follow The National’s Business section on Twitter