Saudi unlikely to sacrifice spare oil capacity, says BMI

Saudi Arabia is unlikely to exhaust its substantial spare capacity though crude production is likely to increase by 1 million barrels per day (mpd) over the coming months, BMI Research said in a new report.

"Exhaustion of the Kingdom's spare capacity would carry significant cost and risks reducing Saudi Arabia's sway over the market. As such, we believe that the increases in its oil output are likely to disappoint the US' demands," it noted.

However, the US will continue to push for Saudi Arabia to significantly increase production to keep a lid on prices and make up for the losses from Iran, Venezuela and Libya.

Earlier this month, King Salman has told US President Donald Trump that the Kingdom maintains a spare capacity of 2 million barrels per day (bpd), which it can use if required to ensure market stability and balance.

According to BMI, Saudi Arabia has sufficient capacity to keep the market comfortably supplied, though the benefits are outweighed by the costs.

However, bringing all its spare capacity into play would incur a significant cost for the Kingdom, while production would take time to bring fully online. In fact, increasing crude output from 11.0 mpd to 12.0 mbd would likely take six to 12 months to fully ramp up, it added.