Following the news that Libyan oil contributions have dropped by 1.2 Mbbl/d in the wake of the country’s political upheaval, the Saudi Arabian Oil Minister made a statement at the recent OPEC meeting in which he pledged that Saudi would compensate for all of Libya’s lost crude exports.

Saudi Arabia produced 8.8 MMbbl/d in January, 8.9 MMbbl/d in February just prior to the Libyan civil war, and then only 9.0 MMbbl/d in May, according Simmons & Co. In the report, author Jeff Dietert said it appears that so far Saudi Arabia has been unsuccessful in meeting the rising oil demand. This observation, he said, poses the question: Why hasn’t Saudi Arabia stepped up its oil production?

Dietert noted that several potential rationales have been considered. It is possible that refiners are not interested in the crude that Saudi Arabia is presenting to the market. The incremental oil supply from Saudi Arabia is Arab Light (medium sour crude in other parts of the world) and Arab Medium in quality. This is perhaps not an appropriate substitute for the lost Libyan barrels.

On the other hand, he commented, an increased crude output may be too much of an exertion on the Middle Eastern kingdom. In February, WikiLeaks released US diplomatic cables in which Saudi officials disclosed that in 2007, the kingdom had overstated its crude reserves by about 300 billion barrels to propel investment, according to United Press International. And politically, the matter of who will succeed King Abdallah (whose health is rumored to be deteriorating) is crucial to the Islamic absolute monarchy, especially with democratic reforms sweeping the region.

At the June 8 OPEC ministerial meeting, Saudi Arabia pushed for the organization to raise production by 1.5 MMbbl/d to a total of 30.3 MMbbl/d to curtail oil prices that are threatening recovery from the global financial crisis of 2008. The suggestion was met with a backlash from Iran and its allies (primarily Venezuela), who have little room to spare in their production capacity and called for immediate revenue increases regardless of future penalties. The debate created a large divide within OPEC, and the meeting adjourned without living up to its mission statement of “ensuring the stabilization oil markets.” Oil production levels remained unchanged.

Saudi Arabia’s oil minister, Ali Al-Naimi, told Reuters the gathering was "one of the worst meetings we have ever had."

In reaction to the June 8 OPEC meeting, the International Energy Agency (IEA) officially commented, “We have noted with disappointment that OPEC members today were unable to agree on the need to make more oil available to the market. Of course what really matters is actual supply, which should move in line with seasonally rising demand, and we urge key producers to respond accordingly. The IEA stands ready to work with its member governments and others to help ensure that markets are well supplied.”

In an introduction to an interview with Stephen King, chief economist for HSBC, Richard Quest of “Quest Means Business” commented, “At its absolute maximum, Saudi's production is believed to be 12 million [barrels], but that is a long way off. And there will be many technical and logistical problems [before] Saudi [can] reach that, so even pushing 9 million is raising eyebrows.”

On June 23, the IEA announced the release of 6 million barrels of strategic oil reserves as an economic stimulus and to offset the disruption of Libyan exports. The conception of the release involved major producers and falls in line with Saudi Arabia’s efforts at the OPEC meeting.

Saudi Arabia has maintained that it plans on keeping its word about increasing production, specifically by 0.5 MMbbl/d to 9.5 MMbbl/d in the calendar month of June, said Dietert. While only the numbers can indicate the extent of Saudi Arabia’s impression on the depleted oil supply, prices may become progressively volatile if it continues to fall short of its stated goals.