Saudi Arabia, the only country on the planet with excess oil production said they were going to increase production again by 200,000 barrels per day in July. They actually said 500,000 bpd but later admitted that included the 300,000 bpd increase they announced last month. Never let it be said that OPEC nations don't know how to milk a press release.
The problem is not what they say but what they do. Reportedly the Saudi Oil Minister told the U.N. Secretary General on a visit to the port city of Jiddah that they would raise production to 9.65 million barrels per day in July. "The king believes that the current oil prices are abnormally high and he is ready to restore prices to their appropriate levels" according to the U.N. spokesman. Saudi Arabia is afraid that the high prices will depress demand for years to come and oil prices as well.
The New York Times reported that the 500,000 bpd increase was supposed to be announced after the June 22nd oil meeting in Jiddah. It is tough to keep a secret when everyone in power knows it and everyone wants to appear important.
OPEC recently warned that excess capacity had fallen under two million barrels per day for the first time since 2006 and given the Saudi increase that excess is now somewhere around 1.6 mbpd on paper. I say on paper since there is no way in hell it will ever come to pass. Everyone who has excess production is already producing it and cheating on their quotas. Everyone but Saudi Arabia.
That is the catch. Saudi is supposed to have between 11.5 - 12.5 mbpd of total capacity but they are struggling to produce the current 9.45 mbpd. Secondly the excess capacity is in heavy crude so they could produce another 2 mbpd and it would not help. There is already an excess supply of heavy low quality crude in the market. Ask Iran, they currently have 28 million barrels floating on rented tankers in the Persian Gulf because nobody wants to buy it. The question remains. IF Saudi produces extra oil, will it be the light crude that is currently in short supply? If not then the entire "We are going to add 500,000 bpd" announcement was entirely political and of zero use.
The price of crude rallied to $139.89 on Monday on news that a fire on a Statoil production platform in the North Sea could halt up to 150,000 bpd of production. Crude spiked to a new high on the news but was quickly sold when it was learned that the fire was quickly put out and production had resumed from the majority of the field.
Also adding to the volatility was the expiration of July crude options on Tuesday. Options expiration has been extremely volatile of late as traders square positions. July crude futures expire on Friday.