The world’s largest oil exporter is slated to cut crude production by 23 percent to around 8.5 million bpd in May and June as part of a deal to cut production with OPEC + to support prices affected by the collapse in demand due to public isolation measures linked to the Corona virus.
Sources in the sector said that Saudi May crude oil exports are expected to reach about six million barrels per day, of which about four million barrels per day will go to Asia. A source said that exports to the United States are expected to be less than 600,000 bpd.
Declining oil production means lower associated gas production, which is a byproduct of crude extraction. Gas is used as feedstock in the petrochemical industry and for electricity generation.
Saudi Arabia is increasingly seeking to increase the electricity generation capacity of gas in order to provide crude for exports.
But lower global oil demand means more cheap crude is available for domestic use, which could mean more oil is consumed this summer when demand for electricity jumps as a result of using air coolers.
In 2019, when Saudi Arabia was producing about 9.9 million bpd, it consumed 550,000 bpd of crude in the summer, down from 700,000 bpd in the previous year. However, industry sources now expect consumption to rise slightly from 2019 levels.
In general, domestic demand for oil and its products is expected to weaken.
“Total demand in the kingdom will be very weak … due to Covid-19, and we will see a decrease in industrial demand,” said Amrita Sen of Energy Aspect Consulting, adding that lower oil prices and budget cuts would push the Saudi economy into recession.
With demand for products falling, consumption of Saudi refineries, which normally process around 2.4 million barrels per day of crude, is likely to decrease.
In accordance with OPEC + cuts, Saudi Arabia will likely prioritize light oil production at the expense of heavy oil, Sadad Al-Husseini, an energy adviser and former chief executive of Aramco, said.
He added that the reason for this is that the light oil fields tend to produce more accompanying gas, and because the extraction of heavy oil is usually more expensive because it comes mostly from offshore fields.
He said, “We will see that steady supplies of light Arab crude and very light Arab crude, and some of the medium Arab crude, constitute most of the (Saudi) production.”
This global glut may increase light oil, which is produced in abundance by US shale oil companies.
Prepared by Mahmoud Salama for the Arabic Bulletin – Edited by Wajdi Al Alfi