Saudi Arabia can raise oil output by 400,000 bpd in H2, says IIF

Saudi Arabia and Russia will account for the maximum portion of the increase in output agreed by OPEC and its non-member allies, as the group attempts to cool down rising prices and head off potential future shortages, Institute of International Finance (IIF) said in a recent report.

The Organization of Petroleum Exporting Countries (OPEC) and other producers agreed last week to reduced their compliance level to the 2016 production-cut deal to 100 percent, from the nearly 150 percent they had reached in May.

The new agreement allows the OPEC+ to raise output by nearly 1 million per day (bpd).

Saudi Arabia, which has a spare capacity of 2 million bpd, could potentially add 400,000 bpd in the second half of this year, the US-based financial industry body said.

Russia could increase its output by 300,000 bpd, while others (Kuwait, the UAE, and Iraq) raise their production by 300,000 bpd.

The hike in output will lead to a slight decline in oil prices, according to the report.

Brent crude prices are expected to average $73 per barrel (bbl) in the second half of this year and $65/bbl in 2019, IIF said.

Upside risks to oil prices include:

- A further decline in Venezuelan output as the state-owned oil company PDVSA struggles with production levels;

- Larger-than-assumed cuts in Iranian crude oil exports in the context of re-imposition of sanctions;

- Emerging infrastructure constraints that could limit the projected growth in the US oil production.

“On the other hand, should Iran’s trading partners not reduce significantly their oil imports from Iran, US oil production end up stronger than expected, and Libya’s production recovers, then oil prices in 2019 could head much lower,” IIF said.