Tue Aug 23, 2016 | 2:19 PM BST
COLUMN-Saudi Arabia isn't flooding oil market ahead of freeze talks: Kemp
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By John Kemp
LONDON, Aug 23 (Reuters) - Saudi Arabia's oil production hit a record in July, according to published statistics, and is likely to hit another in August, according to industry sources.
Some analysts have interpreted the increases as an aggressive demonstration of the kingdom's ability to ramp up output ahead of an informal meeting of oil ministers in Algeria next month.
In this view, Saudi Arabia is increasing output as a warning to rivals that if there is no agreement on a production freeze it has the means to continue raising its output and intensify the pain for all oil exporters ("Saudi signals it may hit new output record ahead of freeze talks", Reuters, Aug. 17).
Saudi Arabia may have resorted to volume warfare in the past to encourage agreement on output and punish non-compliance ("OPEC and other commodity cartels", Alhajji and Huettner, 2000).
But a closer look at the kingdom's recent production, consumption and export statistics paints a more nuanced picture.
At least this time around, there is no evidence that Saudi Arabia is raising production to intensify the pressure on its rivals to reach a production freezing agreement.
SEASONAL EFFECTS
Saudi oil production typically increases during the summer months to meet extra direct consumption of crude in the kingdom's power plants.
In the past decade, Saudi oil production has been on average almost 400,000 barrels per day higher in July than January (
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The production swing from January to July has been very variable, ranging from a reduction of 325,000 bpd to an increase of more than 1 million bpd.
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But production has tended to increase seasonally by between 150,000 bpd and 650,000 bpd, according to the Joint Organisations Data Initiative (JODI).
In 2016, crude production increased by 440,000 bpd between January and July, which is squarely within the normal range.
Temperatures across the Arabian peninsula and neighbouring parts of the Middle East hit record levels during July and early August ("Oil demand likely rising in sweltering Middle East", Reuters, Aug. 12).
Strong air-conditioning demand is likely to have contributed to high combustion of crude oil and refined products such as diesel and residual fuel oil.
At the same time, Saudi Arabia has installed more gas-fired generating capacity and taken other measures to reduce direct crude burn in the power system.
Saudi Energy Minister Khalid Al-Falih said earlier this month oil production had risen "in part to meet the increase in seasonal demand during summer".
"Domestic demand usually goes up during the summer due to increasing use of electricity for cooling," he explained.
But he went on to note "this summer's increase is lower than that of previous summers" owing to efficiency measures.
Published data show direct crude combustion was just over 700,000 bpd in June, significantly lower than in June 2015 (894,000 bpd) and June 2014 (827,000 bpd).
Data on direct crude consumption during the heat waves of July and August will only become available in September and October (
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