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Dominion Resources : Saudi Arabia to Cut Oil Production After Summer

07/29/2015 | 01:45pm US/Eastern

RIYADH?The world's top crude-oil exporter, Saudi Arabia, is planning to pull back from record-high levels of production at the end of the summer when domestic energy demand subsides, according to people with knowledge of the matter.

The reduction could begin as soon as September and would amount to about 200,000 to 300,000 barrels a day, bringing production to about 10.3 million barrels a day, the people said. Saudi Arabia told the Organization of the Petroleum Exporting Countries that it produced 10.56 million barrels a day in June, a record high.

"It is purely based on the [domestic] demand situation," one of the people said, adding that "production is likely to hover around" 10 million barrels until the end of the year.

Saudi Arabia?one of a handful of countries that generates electricity by burning crude oil?generally reduces production in the fall, when demand for the heavily subsidized energy to power air conditioners cools off. But the upheaval in world energy markets led some to believe this year would be different.

Challenged by oil prices down by half in the past year, the kingdom, along with the Organization of the Petroleum Exporting Countries, abandoned its traditional role of trying to prop up prices with supply cuts. Instead, it has embarked on a production tear, ramping up output to record levels to maintain its share of the market.

The planned reduction likely wouldn't affect exports and demonstrates that at least part of the kingdom's recent production figures were related to its domestic-energy needs. Much of the recent production went to Saudi Arabia's domestic refineries, including the two 400,000 barrels a day refineries it recently brought online with France's Total and China's Sinopec.

Saudi production figures are closely watched by oil investors as an indicator of global supplies, as the kingdom produces more than 10% of the world's crude. Some experts have predicted the world's top oil exporter would have to produce up to 11 million barrels a day to meet demand for both exports and domestic needs.

But people with knowledge of the matter said 11 million barrels was unlikely.

The country has the ability to produce 12.3 million barrels a day for 90 days, but it has never pumped this much. Saudi output averaged 9.22 million barrels a day from 2006 to 2014, according to the U.S. Energy Information Administration.

Write to Summer Said at summer.said@wsj.com

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