Saudi Arabia: OPEC oil prices rise ahead of planned production cut
October 26, 2016
Despite doubts about its implementation, oil prices have jumped since the Organization of the Petroleum Exporting Countries (OPEC) reached a preliminary agreement in late September to reduce crude supply by around 700,000 million barrels per day (mbpd). The OPEC’s oil basket traded at USD 48.2 per barrel on 24 October, an increase of 12.3% from the same day in September. Oil prices have recovered an astonishing 54.0% since the start of the year and they are up 10.8% on an annual basis.
The upward trend in oil prices following the OPEC’s decision to reduce crude production from the current level of around 33.39 mbpd to 32.5–33.0 mbpd was reinforced by statements from Saudi officials that the long decline in oil prices was nearing an end. However, fears that the global oil market will long remain oversupplied due to rising production in some key countries such as Libya, Nigeria and Russia will jeopardize any sizeable gain in oil prices. The news that some OPEC countries are apparently refusing to cut crude production highlights the difficulties in reaching the final agreement expected by 30 November.
OPEC pumped 33.39 mbpd in September, up from the 33.17 mbpd extracted in August. The sharp increase mostly reflects OPEC members’ attempts to ramp up oil production before the approval of the final oil deal. According to the latest OPEC Monthly Oil Market Report, September’s increase in output mainly reflected a boost in production in Iraq, Libya, Nigeria and, to a lesser extent, in Kuwait. Conversely, Saudi Arabia and Venezuela recorded a significant reduction in crude production in the same month. Saudi Arabia produced 10.49 mbpd in September, which was below the 10.58 recorded in the previous month.