London — In a week's time, Saudi Arabia is set to turn its taps to the max and unleash a surge of crude oil that refiners increasingly say they don't want nor need.
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But the kingdom has yet to prove that it can follow through on its plans to pump an unprecedented 12 million b/d of crude — almost 1 million b/d higher than it has ever produced before.
It is only recently recovered from last September's missile attack on its critical Abqaiq crude processing facility, and pumping at that volume will be a massive test of state oil company Aramco's capabilities and infrastructure.
"My sense is that they can do it but they need time to deliver the full capacity," said long-time Saudi analyst Bill Farren-Price, a director at consultancy RS Energy Group, adding that additional rigs would need to be hired to tap the kingdom's vast reserves. "The terminal and midstream capacity is there, but the wellhead capacity needs... at least 90 days to be delivered."
Saudi officials, piqued by Russia's rejection of an OPEC proposal for deeper production cuts to prop up prices, have ordered Aramco to supply a record 12.3 million b/d of crude starting April 1, flooding a coronavirus-impaired market that has seen oil demand collapse.
Aramco has said 300,000 b/d of that supply will come out of its vast global inventories, leaving the remaining 12 million b/d to come from the ground, implying the company will be using its entire production capacity.
Aramco can maintain that level of production for a year, without investing any new capital, CEO Amin Nasser said on an earning call with analysts last week.
It could even go above its full capacity in a pinch, he said, though he did not elaborate on how. The company produced an average of 9.9 million b/d of crude in 2019.
"Our maximum sustained capacity is 12 million b/d, [and] 300,000 b/d is coming from our inventories, whether in the kingdom or out of the kingdom," he said. "We are looking at how long we can maintain that additional 300,000 b/d. It is definitely for sure in April, and we're looking at other months maintaining higher production above our maximum sustained capacity."
Coming up with the barrels
Some barrel counters have doubts.
Saudi Arabia has never self-reported a monthly production figure higher than 11.08 million b/d, which it achieved in November 2018, according to OPEC records.
S&P Global Platts Analytics estimates that the kingdom could max out its production at 11.4 million b/d for a few months, not including the Neutral Zone between Saudi Arabia and Kuwait, which could add another 500,000 b/d but is outside of Aramco's sole purview.
However, "history indicates sustainable capacity over a prolonged period may be closer to 10.5 million b/d, in terms of optimal reservoir management," said Paul Sheldon, chief geopolitical adviser for Platts Analytics.
Bob McNally, head of consultancy Rapidan Energy Group, said he believes Saudi claims of its production capacity are credible, but added: "Nobody really knows, since these production numbers have never been achieved before, but what we do know is that they are determined to prove a point and have a history of following through on their promises."
Aramco has been constantly investing in new field capacity, much of which is intended to offset natural depletion rates.
Some of those projects, such as expansions of the Shaybah, Manifa and Khurais fields, have come online within the last few years. Others are still on tap, including extensions of the Zuluf, Marjan, Berri and Safaniya fields.
Saudi energy ministry officials did not respond to requests for comment.
The kingdom's OPEC brethren, stung by its price-busting tactics, are left speculating on Saudi intentions. One non-Gulf OPEC delegate told S&P Global Platts he expects Saudi Arabia to boost its production for April and May and then bring it down to more normal levels in June, when OPEC is set to meet again to discuss output policy.
"Saudi Arabia wants to show that it is able to put large volumes on the market," the delegate said on condition of anonymity. "The question is how long it can [supply] 12.3 million b/d."
No need for more crude
The market is certainly not lacking for oil, with the coronavirus outbreak causing demand for gasoline and jet fuel to plummet as airlines cancel flights and countries order citizens not to travel.
Product margins are falling drastically for refiners, leading to run cuts, and market sources say that even if Aramco offers more volumes, the company may not find many takers.
For now, Saudi Arabia has largely yet to physically manifest what it has verbally signalled.
Saudi crude inventories have not swelled in preparation for an export rise, according to geospatial intelligence firm Ursa, standing at 100.2 million barrels as of last week, in line with the year-to-date average of 101 million barrels.
Saudi crude exports have also yet to accelerate, with March volumes averaging 6.84 million b/d, down from February's 7.19 million b/d, according to trade flow tracker Kpler.
Market realities may mean that whether or not Saudi Arabia is able to max out its production, its will to supply record volumes may run up against buyers' lack of appetite for crude.