December 8, 2023

Saudis Adjust Oil Production as World Demand Fluctuates

When output from Libya declined this year, Saudi Arabia opened the spigots. And when demand fell as a result of the earthquake and tsunami in Japan, the country tightened them back down.

The Saudis raised output an average of 310,000 barrels a day in the first three months of the year, to 8.88 million barrels a day, with expectations that production would hold at more than 9 million barrels in March. But the quake and tsunami that hit north of Tokyo changed the equation, cutting Japanese demand and leading to the diversion of Japan-bound Saudi oil tankers to other countries.

“As a result, Saudi Aramco is thought to have throttled back production in mid-March,” the agency said, referring to the state-owned oil company.

The agency estimated that the effects of the earthquake would cut second-quarter demand by 270,000 barrels a day, easing upward pressure on prices.

But for the rest of the year, it said, increased Japanese oil use for power generation and reconstruction would make up the difference. The agency, therefore, left intact its 2011 demand forecast at 89.4 million barrels a day, up 1.6 percent from 2010.

Oil prices have been increasing, spurred by production lost to the conflict in Libya and unrest throughout the Middle East and North Africa. Light sweet crude, the United States benchmark, has risen about 19 percent this year, and settled Tuesday at $106.25 a barrel for June delivery.

Fears that higher energy costs will lead to a generalized rise in prices have not occurred. But economists warn that the world economy, still weighed down by banking sector problems, may be too fragile to maintain its momentum if energy prices continue to climb.

The agency said a sustained price of more than $100 a barrel could “prove incompatible with the currently expected pace of economic recovery.”

And it warned that “if global supply were to chug along at March levels for the rest of 2011,” developed world inventories could near five-year lows by the end of the year.

Global output declined by 700,000 barrels a day in March, to 88.3 million barrels, as Libyan crude production fell, the agency said.

Production in March and April fell a cumulative 100,000 barrels a day in Yemen, Oman, Gabon and Ivory Coast amid strife in those countries.

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