Exclusive: Cost of pump-at-will oil policy spurred Saudi OPEC U-turn
By Rania El Gamal and Dmitry Zhdannikov
DUBAI/LONDON (Reuters) - Saudi Arabia has long said it could produce as much as 12 million barrels per day (bpd) of oil if needed, but that pump-at-will claim - which would require huge capital spending to access spare capacity - has never been tested.
Sources say the kingdom may have stretched its current limits by extracting a record of around 10.7 million bpd this year, which could be one reason why Riyadh pushed so hard for a global deal to cut production.
Riyadh, the world's top oil exporter, felt the burn of cheap oil this year when crude was trading below $50 a barrel, as the reality of its costly war in Yemen and the task of shaking up its economy to create thousands of jobs began to sink in.
With tight resources, Saudi Arabia found itself weighing the prospect of investing billions of dollars to raise oil output further if it wanted to gain more market share under a strategy adopted in 2014.
Instead, cutting production amid a global glut and low prices to take the pressure off its oilfields, secure better reservoir management and save itself unnecessary expenses, seemed the perfect deal.
"You invest in raising your production when prices are high, not when they are low," a Saudi-based industry source said.
"Choices are tougher now. The question is, would the Saudi government with its tight budget put huge investment in raising production or put it somewhere else where it's needed more?"
Oil rose as much as 6.5 percent on Monday to an 18-month high after OPEC and some of its rivals reached their first deal since 2001 to reduce output jointly. On Thursday, oil LCOc1 was trading above $54 a barrel. Continued...