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Saudi May Be Strapped for Oil, Close to Full Capacity

CNBC.com 15 Jun 2008 | 08:54 PM ET

Saudi Arabia's pledge to boost oil production by 500,000 barrels per day may not be achievable, a source close to the Saudi oil industry told CNBC.com.

The New York Times report on Saturday, citing unnamed analysts and oil traders briefed by Saudi officials, said the production increase was to be announced at a meeting of oil producing and consuming countries on June 22 in the port city of Jiddah to discuss ways of dealing with
soaring energy prices.

The increase would bring Saudi's oil production to 10 million barrels a day, the country's highest ever, according to reports by the New York Times and the Middle East Economic. Saudi Arabia is the world's largest oil-producing country.

But the country's ability to produce more than 9.45 million barrels a day of easily refined sweet crude is reliant on the newly-discovered Khursaniyah field, which is of yet producing to its full capacity, a source close to the industry said.

The field was expected to start pumping oil in 2007, but only started producing in 2008 because of technical delays. And even then, it was expected to produce 500,000 barrels per day, but is currently producing just 300,000 barrels per day.

The plan is that Khursaniyah can raise its production by 200,000 barrels, but that would be the maximum, according to Saudi Aramco's annual report.

The Saudis are concerned that sustained high oil prices will eventually slacken the world's appetite for oil, affecting them in the long run.

U.S. light, sweet crude for July delivery slipped below $135 a barrel in the Asian session Monday on the news that Saudi plans to raise production. London Brent crude also traded down.

Crude prices have reached record highs, surpassing $139 a barrel on June 6 after surging nearly $11 in the biggest single-day price leap ever. Meanwhile, the average national price for a gallon of regular gas in the U.S. rose to a record $4.066 Friday, up from $4.06 a day earlier, according to AAA and the Oil Price Information Service.