Saudi Arabian oil production has increased to its highest level in three decades, just as U.S. output is expected to drop from its 30-year high. Fearing a loss of global market share, the oil-rich kingdom has kept its crude oil spigots open despite a U.S. oil boom that’s contributed to a glut driving prices to about half what they were a year ago.
The Organization of Petroleum Exporting Countries (OPEC) said Thursday that Saudi Arabia’s March daily crude oil output averaged 10.29 million barrels per day, an increase from the previous month of 658,800 barrels per day. The increase is equivalent to more than half of the oil coming out of the northern Bakken formation that’s at the center of the U.S. oil extraction boom, according to Bloomberg.
“Crude oil output increased mostly from Saudi Arabia and Iraq,” said OPEC’s monthly oil market report released Thursday.
Meanwhile, OPEC predicts that U.S. crude and petroleum liquids output this year will peak in the current quarter, to 13.65 million barrels per day before production begins to level off and then decline toward the end of the year. This estimate is in line with U.S. Energy Information Administration and International Energy Agency forecasts that see U.S. oil output falling later this year.
Thanks to hydraulic fracturing – a controversial, water-intensive process that squeezes oil and natural gas from underground shale formations – U.S. crude output has nearly doubled in seven years. The output caused a global oil glut that tanked crude prices, which is now causing drillers to scale back on production. Once oil is extracted, it costs money to store to wait for prices to rise, and U.S. oil storage capacity is also operating at peak levels.
Fearing it could lose the Asian market to its competitors as oil shipments shift away from the U.S., Saudi Arabia has been selling its oil at a discount in that region. But earlier this month Riyadh said it would raise prices next month for oil it sells in Asia, from 90 cents below the regional benchmark price to 60 cents below. The price hike is a signal that officials in the country with 16 percent of the world’s proven oil reserves believe the recent oil glut is coming to an end.
Brent crude increased 3 percent on Thursday to its 2015 high, above $63 per barrel, as traders reacted to Thursday’s OPEC report. "People are realizing that the U.S. production juggernaut is slowing, at least for now," Virendra Chauhan, oil analyst at Energy Aspects, a London-based consultancy, told Reuters.