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Saudi Arabia may “flush” the market with a flood of supply that would sink prices, an expert said.
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That comes as OPEC+ concluded its latest meeting where members pledged voluntary production cuts without giving firm commitments.
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Meanwhile, US crude output has been on a tear this year, hitting new record highs.
Saudi Arabia is considering flooding the oil market with additional supplies, potentially reversing its production curbs in an effort to regain control of prices, according to an energy market veteran.
This comes as OPEC+ recently ended a meeting where members committed to voluntary production cuts without making firm commitments, causing oil prices to fall.
“We’ve more or less been saying potentially Saudi needs to just flush this thing out,” Paul Sankey from Sankey Research told CNBC on Friday.
Sankey estimated that Saudi Arabia has the capacity to increase its output by an additional 2.5 million barrels a day.
Currently, OPEC’s leader is trying to support crude prices by pumping less. On Thursday, it extended its 1 million barrel per day cut into the first quarter.
However, Sankey noted that in 2014, Saudi Arabia shocked markets when it attempted to flush the market by driving crude prices from around $110 a barrel to $50.
Eventually, the drop in prices forced higher-cost producers to exit the market, while Saudi Arabia continued to pump as it was better able to withstand lower prices. As supplies from its rivals disappeared, the kingdom gained control over prices.
Similar to the past, growing US oil supply continues to be a challenge for OPEC and Saudi Arabia. Sankey reported that on Friday, the oil cartel is “a huge problem with US production levels.”
In fact, US crude output has been on a tear this year, with monthly production hitting a record high in September at more than 13.2 million barrels a day, according to data from the Energy Information Administration.
Read the original article on Business Insider
