Saudis Boost Output of Oil to Grab Back Share of the Market

Saudi Arabia sent its most powerful message out yet that the prices of oil are not going to be rebounding in the near future, by abandoning a passive response to the glut of world oil.

Instead of keeping the production of its own oil flat, Saudi Arabia boosted its production sharply to grab back some market share. Ali al-Naimi the oil minister from Saudi Arabia on Tuesday revealed that the oil production in the Kingdom for March was 10.3 million barrels per day, a new record high.

An energy consultant from Switzerland said that Saudi was going for it, as Brent crude dropped close to 1.3% on Wednesday.

The strategy switch by Saudi Arabia comes as the 50% drop in oil prices since June of last year triggered the largest gas and oil merger in more than a decade. Royal Dutch Shell, the energy giant that is Anglo-Dutch, announced early Wednesday morning that it would acquire BG Group of Britain for $70 billion.

This blockbuster deal was driven apparently by the desire of both companies to lower costs and the desire of Shell to increase its reserves quickly through buying them in the market rather than having to drill for them.

If anything, the strategy switch by Saudi Arabia could encourage more consolidation in the gas and oil sector. That could take place because dropping oil prices provide even more of an incentive to merge that do rising prices.

The aggressive production move by Saudi Arabia comes as a big surprise. At the OPEC meeting last November in Vienna, the production levels were left intact by the Saudis rather than making them tighter to prop prices up.

That decision was sufficient enough to make oil prices plunge. Since that time, many or perhaps the vast majority of oil investors, executives and consultants had assumed the Saudi’s passive stance would continue. However, all were wrong.

Only a few weeks ago, Saudi Arabia’s al-Naimi made an announcement that the crude production in his country for March would be 10 million barrels per day, which is close to 400,000 barrels more per day than the figure in November, but in reality ended at 700,000 more daily than the previous month.

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