According to the latest IEA Oil Market Report, Saudi Arabia continued to produce at record highs in July, as high cost U.S. shale producers continue to struggle. Notably, OPEC crude oil output rose by 150 kb/d to 33.39 mb/d in July as Saudi Arabia pushed output to the highest ever and Iraq pumped more oil. Strong Middle East production lifted total OPEC crude supply 680 kb/d y/y and held output at an eight-year high. Overall, global oil supply rose by 0.8 mb/d in July, as both OPEC and non-OPEC production increased. Interestingly, output was 215 kb/d lower than a year earlier, as declines from non-OPEC (mainly U.S. producers) more than offset an 840 kb/d annual gain in total OPEC liquids. Non-OPEC production is forecast to drop by 0.9 mb/d this year before rebounding by 0.3 mb/d in 2017. Considering Saudi Arabia's uniquely low break-even price for oil, this has effectively allowed the country to continue pumping at unprecedented rates (as evidenced by the IEA's recent Oil Market Report). This approach preserves Saudi Arabia's leadership position in determining global production and price and cuts into the oil revenue of Iran, Saudi's top regional foe — all without seeming to pose any kind of long-term threat to the country's bottom line. Further, Saudi Arabia has also expressed in the past that it clearly believes that it's necessary to shut down the cartel’s biggest rivals in Russia and the shale oil fields of North Dakota. If victorious (which seems inevitable at this point), Saudi Arabia will emerge stronger after re-asserting its global significance as the custodian of the world’s primary energy source.
A Canadian Energy expert