“Call it Saudi Arabia’s ‘Spinal Tap’ policy,” says David Sheppard in the Financial Times. It is showing the global oil market that only one producer is “capable of turning it up to 11” – just like Spinal Tap’s amplifiers. Saudi crude production hit a record 10.6 million barrels per day (mbpd) in June, a rise of 200,000 on May. If production keeps climbing at this rate, Saudi Arabia could become the first country since the Soviet Union to pump 11 million barrels per day.
The authorities seem to be upping the ante in their efforts to preserve market share by keeping prices low. They have also borrowed $4bn – the first Saudi bond sale in eight years – in order to give them extra financial room for a long campaign: Saudi Arabia typically needs an oil price of $105 a barrel to meet its public spending, and has already drawn down $65bn of its foreign reserves, which peaked at $737bn last summer.
Saudi Arabia is trying to ensure that US shale producers go out of business. Yet so far US production has not slowed significantly. Since April, crude has averaged $60 a barrel, evidently not low enough to finish them off. Iranian oil now also looks set gradually to return to the market, and Saudi Arabia will be eager to prevent its regional rival gaining market share. All this suggests that the global oil supply glut is set to get bigger.