Saudi Arabia, Bahrain point to downstream deficits

A lack of refining capacity and demand means any increases to Opec+ crude production beyond what is in process would be pointless, according to two of the group's Mideast Gulf producers.

The 19-nation coalition has faced calls to speed its output increases, even though it is falling short of its overall targets, with rising prices for refined products threatening economic growth in large consuming nations. But Saudi Arabia and Bahrain today, 16 May, sought to push the reason for those high prices into the downstream sector.

"There is no refining capacity commensurate with the current demand and the expectation… of the demand this summer, when people go to gasoline, diesel, and what have you, for their transportation," Saudi energy minister Price Abdulaziz bin Salman said at an energy conference in Bahrain. He noted increases in refining margins that, for diesel notably, have reached record highs.

"With all the… clamour of what is happening to oil prices, look who is picking the tab," he said. "[The] OECD and the G7."

Bahrain's oil minister Sheikh Mohammed bin Khalifa al-Khalifa said producing more crude is pointless without the demand for it.

"The market is well supplied… so if you increase [crude output], where is it going to go," he said.

Sheikh Mohammed said the Opec+ coalition will most likely press ahead with its scheduled 432,000 b/d monthly production target increases until September.

"[Opec+] will continue [at the next meeting]," he said. "They are almost over with that [the agreement]."

The focus on refining-sector deficiencies comes as the Opec+ coalition has repeatedly resisted international calls to accelerate its production hikes. The group now faces pressure from the US' No Oil Producing and Exporting Cartels (Nopec) bill — legislation that would permit US prosecutors to charge foreign entities in US courts for anti-competitive behaviour in the oil markets.

Iraq's oil minister Ihsan Ismael today reiterated Opec's long-held stance that it is "not targeting the [oil] price." Opec has always said that its policy, including the current iteration of the Opec+ production restraint agreement, seeks to reduce crude stocks relative to a five-year average

Prince Abdulaziz again today said the existence of Opec+ has avoided volatility. Pointing to increases in price for natural gas and coal, he rhetorically asked: "Who's doing a better job? Opec+ or unregulated markets? And look at the consequences."

An Opec+ official has previously warned that stepping up the group's output increases would bite into the already slim reserves of spare capacity. Saudi Arabia and Iraq today gave updates on plans to raise available capacity.

By Ruxandra Iordache, Nader Itayim, Sarah Raffoul and Ieva Paldaviciute