Saudi Arabia has announced plans to increase production of crude to 15 million barrels a day by 2020. The Gulf nation currently produces 12.5 million barrels of the commodity. According to a Bloomberg report, the increased production will allow the country to export as much as 20 million barrels of crude per day.
Oil production is a sensitive strategic issue for those countries where production of the fuel makes up a large part of their economic activity. If oil supplies are kept low, the price will rise and the world may move to alternative energy sources, but if it is allowed to increase too much prices fall and it is worth much less for OPEC nations to produce.
The 2.5 million increase in production is the first time that Saudi Arabia has increased its crude production since 2009, when the country decided to increase its daily production from 10 million barrels to 12.5 million. Many of the country’s top officials with responsibility in the oil sector have maintained that the country had no plans to increase crude production, but that has changed today.
The production of crude oil is dominated by companies in the Middle East, and in terms of pure production the Saudi state producer Saudi Aramco is the biggest of them all. A move to production of 15 million barrels per day will put the company even further ahead of its closest rival, Gazprom, which produces just under 10 million barrels per day.
The top five producers are rounded out by the National Iranian Oil Company, at around 6.5 million barrels, Exxon Mobil Corporation (NYSE:XOM) at 5.3 million, and Petro China at 4.4 million barrels. An increase in production of 2.5 million barrels is a significant amount in the world market.
Saudi Arabia says that the increase in production will not represent an increase in world production, but instead represents the country’s attempts to stabilize world oil supply at its current level. The country also wants to ensure it manages to keep enough spare supply in reserve to offset any global supply interruptions that could cause price rises and reversals in sentiment.
Saudi Arabia has a quickly expanding population at home, and the country is hoping to supply its own population fromwith cheaper energy sources, like natural gas and solar power. Oil will be retained for export, and with the country’s production and preeminence in OPEC, its government has a large amount of control on price issues.